Suppose a country devalues its currency.If the country's demand for imports is ______, the price increase resulting from the devaluation results in a relatively large decrease in the volume of imports, causing total import expenditures to decrease.
A) perfectly inelastic
B) relatively inelastic
C) unit elastic
D) relatively elastic

Question

Quizplus · Accepted Answer

If the country's demand for imports is relatively elastic, then a price increase resulting from the devaluation will result in a relatively large decrease in the quantity of imports demanded, causing total import expenditures to decrease. This is because consumers will be more sensitive to price changes and will be more likely to switch to domestic alternatives or substitute products from other countries.

Suppose a Country Devalues Its Currency