When a nationʹs currency depreciates, the country might
A) be responding to a decrease in the domestic demand for foreign currencies.
B) have an inflation rate that exceeds the inflation rate in nations with which it trades.
C) be responding to an increase in the demand for its currency.
D) have an inflation rate below the inflation rate in nations with which it trades.

Question

Quizplus · Accepted Answer

If a nation's currency depreciates, it means that its value has decreased relative to other currencies. This often happens when the country has a higher inflation rate than its trading partners, making its exports more expensive and less competitive. This can lead to a decrease in demand for the country's currency and a corresponding depreciation. Therefore, choice B is the best answer.

When a Nationʹs Currency Depreciates, the Country Might