Day: December 29, 2021

A country devalues its currency in the expectation that a deficit on the current account of the balance of payments will be reduced.

What is necessary to make this happen?

Select ONE answer:

1. any tariff on imports must be matched by a subsidy on goods to be exported
2. the elasticity of demand for imports and the elasticity of demand for exports must both be greater than 1
3. the rate of domestic inflation is equal to the rate of inflation in the foreign market
4. the sum of the elasticities of demand for domestic imports and the foreign demand for exports is greater than 1

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Economics KS4 and KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct

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