Suppose that Brazil faces domestic inflation and a current account deficit.Should Brazil devalue its currency,one would expect the:
A) Inflation to become more severe--deficit to become less severe
B) Inflation to become more severe--deficit to become more severe
C) Inflation to become less severe--deficit to become less severe
D) Inflation to become less severe--deficit to become more severe

Question

Quizplus · Accepted Answer

Devaluation makes imports more expensive, potentially worsening inflation, but it can improve the current account deficit by making exports cheaper and imports more expensive.

Suppose That Brazil Faces Domestic Inflation and a Current Account