An external shock such as a foreign country's devaluation will shift the:
A)FE curve to the right.
B)LM curve to the right.
C)FE curve to the left.
D)LM curve to the left.

Question

Quizplus · Accepted Answer

A foreign country's devaluation can make domestic goods more expensive relative to foreign goods, potentially reducing exports and increasing imports. This can lead to a decrease in the demand for domestic currency, shifting the FE (Foreign Exchange Market Equilibrium) curve to the left as the country's currency becomes weaker in the foreign exchange market.

An External Shock Such as a Foreign Country's Devaluation Will