Suppose the United States has a fixed exchange rate, and it faces domestic recession and a trade deficit.Assuming it desires overall balance, if the United States devalues the dollar, other things equal one would expect which of the following to occur?
A) the recession to become less severe and the trade deficit to become less severe
B) the recession to become more severe and the trade deficit to become less severe
C) the recession to become less severe and the trade deficit to become more severe
D) the recession to become more severe and the trade deficit to become more severe

Question

Quizplus · Accepted Answer

Devaluing the dollar makes U.S. goods cheaper for foreigners and foreign goods more expensive for Americans, which can increase exports and decrease imports, potentially reducing the trade deficit and stimulating economic growth, thus alleviating the recession.

Suppose the United States Has a Fixed Exchange Rate, and It