According to the absorption approach,the economic circumstances that best warrant a currency devaluation is where the domestic economy faces:
A) Unemployment coupled with a payments deficit
B) Unemployment coupled with a payments surplus
C) Full employment coupled with a payments deficit
D) Full employment coupled with a payments surplus

Question

Quizplus · Accepted Answer

The absorption approach states that a currency devaluation should be used when the domestic economy is facing unemployment alongside a payments deficit. This is because a devaluation makes exports cheaper and more competitive, which can increase demand for domestic goods and services and ultimately boost employment. Additionally, a devaluation can make imports more expensive, reducing the demand for foreign goods and thereby improving the balance of payments. So, option A is the most suitable economic circumstance for a currency devaluation according to the absorption approach.

According to the Absorption Approach,the Economic Circumstances That Best Warrant