A currency depreciation will begin to improve the trade balance immediately

Question

Quizplus · Accepted Answer

If the demand for imports and exports are elastic, a currency depreciation will lead to a relatively larger decrease in demand for imports than the decrease in demand for exports, leading to an improvement in the trade balance. However, if the demand for imports and exports are inelastic, a currency depreciation may not have a significant impact on the trade balance. If both imports and exports decrease, it will not lead to an improvement in the trade balance.

A Currency Depreciation Will Begin to Improve the Trade Balance