Macroeconomics: Open Economy Macroeconomics · Class 12 · CBSE · Commerce Economics
Explain how depreciation of the domestic currency can affect a country's exports and imports, assuming other factors remain unchanged.
Practice question from Macroeconomics: Open Economy Macroeconomics (Class 12 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
medium · Subjective · Q-B95A83
Explain how depreciation of the domestic currency can affect a country's exports and imports, assuming other factors remain unchanged.
Solution
When the domestic currency depreciates, foreign buyers need less of their currency to purchase domestic goods, while domestic residents pay more for imports. Thus, exports tend to rise and imports tend to fall, which may improve the trade balance.
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