Theoretically, when a currency depreciates one can predict that
A)the price level will rise and real GDP will rise.
B)the price level will fall and real GDP will fall.
C)real GDP will rise, but price change is not predictable.
D)the price level will rise, but real GDP change is not predictable.

Question

Quizplus · Accepted Answer

When a currency depreciates, the price of imported goods will rise, which will lead to an increase in the overall price level (inflation). However, the impact on real GDP is not predictable as it depends on various factors such as the elasticity of demand for exports and imports and the response of domestic producers to the changes in relative prices.

Theoretically, When a Currency Depreciates One Can Predict That