Under fixed exchange rates, which one of the following statements is the MOST accurate?
A) Devaluation causes a rise in output.
B) Devaluation causes a decrease in output.
C) Devaluation has no effect on output.
D) Devaluation causes a rise in output and a decrease in official reserves.
E) Devaluation causes a decrease in output and in official reserves.

Question

Quizplus · Accepted Answer

Devaluation under a fixed exchange rate system typically makes domestic goods cheaper for foreigners and foreign goods more expensive for domestic consumers, which can increase demand for domestic goods, leading to a rise in output.

Under Fixed Exchange Rates, Which One of the Following Statements