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If a country is in a major recessionary phase of the business cycle, one can expect...

If a country is in a major recessionary phase of the business cycle, one can expect that its currency will

devalue.

revalue.

appreciate.

depreciate.

Business   Economics   
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Answer #1

The answer is option d- depreciate

On the one hand, the exchange rate acts as an automatic stabilizer in countries with procyclical currencies: it depreciates at low growth, boosts exports, and appreciates at high economic growth, reducing domestic demand. However, since countries with procyclical currencies are less capable of pursuing countercyclical monetary policy, they may be less capable of avoiding the credit booms that often end in a bust and in turn lead to financial crises.

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