When policy makers decide to devalue the currency,such an action generally represents
A)a decision to let the currency float.
B)an increase in the pegged value of the domestic currency.
C)a reduction in the foreign price level.
D)a reduction in the domestic price level.
E) none of the above

Question

Quizplus · Accepted Answer

When policymakers decide to devalue the currency, it means they are deliberately causing the value of the currency to fall in relation to other currencies. This will make exports cheaper and imports more expensive, which can increase demand for domestic goods and decrease demand for foreign goods/services. This, in turn, can lead to a reduction in the domestic price level as the demand for domestic goods increases, but also to an increase in the foreign price level as the exports become cheaper.

When Policy Makers Decide to Devalue the Currency,such an Action