If the demand effect dominates during a currency depreciation, then
A)real GDP should fall.
B)real GDP should increase.
C)the price level should fall.
D)net exports should decrease.

Question

Quizplus · Accepted Answer

During a currency depreciation, the demand effect may dominate and the relative price changes can lead to an increase in exports, resulting in an increase in aggregate demand and potentially leading to an increase in real GDP. Therefore, option B is the best choice. Options A, C, and D are not necessarily true in this case.

If the Demand Effect Dominates During a Currency Depreciation, Then