What is the likely result from a depreciation of a nation's currency when its economy is already operating at its full-employment level of output?
A) Net exports fall and contribute to demand-pull inflation
B) Net exports rise and contribute to demand-pull inflation
C) Net exports fall, but equilibrium GDP rises
D) Net exports rise, but equilibrium GDP falls

Question

Quizplus · Accepted Answer

When a nation's currency depreciates, its goods and services become cheaper for foreign buyers, leading to an increase in net exports. If the economy is already at full employment, this increase in demand can lead to demand-pull inflation as the economy tries to produce beyond its capacity.

What Is the Likely Result from a Depreciation of a Nation's