An increasing trade deficit for Micromania will, ceteris paribus, lead to a devaluation of Micros (Micromania's currency) in world currency markets.

Question

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An increasing trade deficit means Micromania is importing more than it is exporting, leading to a higher demand for foreign currencies to pay for these imports. This increased demand for foreign currencies and decreased demand for Micros will, ceteris paribus, lead to a devaluation of Micros in world currency markets.

An Increasing Trade Deficit for Micromania Will, Ceteris Paribus, Lead