How does a decrease in value of a country's currency relative to other currencies affect its balance of trade?
A)A decrease in value of a country's currency relative to other currencies raises imports, reduces exports, and reduces the balance of trade.
B)A decrease in value of a country's currency relative to other currencies reduces imports, raises exports, and reduces the balance of trade.
C)A decrease in value of a country's currency relative to other currencies reduces imports, raises exports, and increases the balance of trade.
D)A decrease in value of a country's currency relative to other currencies raises imports, reduces exports, and increases the balance of trade.
E)A decrease in value of a country's currency relative to other currencies reduces imports, reduces exports, and reduces the balance of trade.

Question

Quizplus · Accepted Answer

A decrease in the value of a country's currency makes its goods cheaper for foreign buyers, thus increasing exports. Simultaneously, foreign goods become more expensive for domestic consumers, leading to a reduction in imports. This combination improves the balance of trade.

How Does a Decrease in Value of a Country's Currency