In which of the following cases can we conclude, without any further information, that a depreciation of a country's currency will worsen the country's trade balance (or current account balance).

Question

Quizplus · Accepted Answer

When the demand curve for exports is vertical and the demand curve for imports is also vertical, a depreciation of the country's currency will make its exports more expensive and its imports cheaper, thus reducing the quantity of exports demanded and increasing the quantity of imports demanded. This will result in a worsening of the country's trade balance (or current account balance). In the other choices, the effects of a depreciation on the trade balance depend on the slopes and positions of the curves.

In Which of the Following Cases Can We Conclude, Without