Question

What is the primary impact of a country devaluing its currency on its exports and imports?

• A. Exports become more expensive, and imports become cheaper
• B. Exports become cheaper, and imports become more expensive
• C. Both exports and imports become cheaper
• D. Both exports and imports become more expensive

Hint:

Remember: Currency devaluation boosts exports by making them cheaper abroad but discourages imports by raising their cost domestically.

Answer 1

The Correct Option is B

To solve the problem, we need to understand the effects of currency devaluation on a country's exports and imports.

1. Understanding the Concepts:

- Currency Devaluation: Reduction in the value of a country's currency relative to other currencies.
- Impact on Exports: Devaluation makes a country's goods cheaper and more competitive in the global market.
- Impact on Imports: Imports become more expensive because more local currency is needed to buy foreign goods.

2. Analyzing the Options:

- Option A: Exports become more expensive, and imports become cheaper — incorrect.
- Option B: Exports become cheaper, and imports become more expensive — correct.
- Option C: Both exports and imports become cheaper — incorrect.
- Option D: Both exports and imports become more expensive — incorrect.

Final Answer:

The primary impact is option B: Exports become cheaper, and imports become more expensive.