One economic cost of an exchange rate crisis is:
A) a decrease in the rate of inflation.
B) an increase in exports.
C) a slowing in a country's rate of economic growth.
D) an increase in employment.

Question

Quizplus · Accepted Answer

Exchange rate crises often lead to a decrease in investor confidence, which can result in a slowing of a country's rate of economic growth. This can happen because investment flows decrease and businesses may become hesitant to buy and sell goods and services due to uncertainty about the future direction of the economy. A decrease in economic growth can lead to a decrease in employment and potentially harm the long-term health of the economy. While an exchange rate crisis may lead to an increase in exports for a short period of time (as domestic goods become relatively cheaper), this effect may be outweighed by the negative impacts on overall economic growth. Inflation may also increase in the short run as imported goods become more expensive, but this effect may be temporary.

One Economic Cost of an Exchange Rate Crisis Is