A real depreciation of a country's currency generally causes:
A) an increase in the production of tradable goods and a reduction in the production of nontradable goods in the economy.
B) a decrease in the production of tradable goods and an increase in the production of nontradable goods in the economy.
C) an increase in the production of both tradable goods and nontradable goods in the economy.
D) a decrease in the production of both tradable goods and nontradable goods in the economy.
E) no change in the production of goods.

Question

Quizplus · Accepted Answer

A real depreciation of a country's currency makes its exports cheaper and imports more expensive. This typically leads to an increase in the production of tradable goods (to meet both domestic and foreign demand) and a reduction in the production of nontradable goods, as resources shift towards the tradable sector.

A Real Depreciation of a Country's Currency Generally Causes