Economics (AS & A Level) · Feb / March 2023 · Paper 32 · Question 24

Country X decides to devalue its currency to eliminate a balance of payments deficit. Why might devaluation have a positive effect on its macroeconomy?

1. ACompetitive pricing of exports may create employment potential in country X.
2. BForeign importers may depreciate their own currencies and reduce any advantage gained by country X.
3. CInelastic demand for imported raw materials may lead to cost inflation in country X.
4. DLoss of import duties by country X may reduce government backing for trade promotion.

As printed in the paper