A devaluation with sluggish price adjustment raises ____________ and aggregate ______ .
A) prices, supply
B) prices, demand
C) competitiveness, supply
D) competitiveness, demand

Question

Quizplus · Accepted Answer

A devaluation with sluggish price adjustment makes domestic goods cheaper relative to foreign goods, thus increasing competitiveness. This tends to raise demand for domestic goods both at home and abroad, hence increasing aggregate demand.

A Devaluation with Sluggish Price Adjustment Raises ____________ and Aggregate