Question

How can the nation's output rise as a result of the depreciation?

How can the nation's output rise as a result of the depreciation?

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Answer #1
  • Depreciation refers to the rate of fall in the value of a country's currency when compared to another country's currency.
  • When a country faces depreciation and it's currency becomes cheaper than other country, imports become too costly while the exports increases as they become cheaper.
  • Depreciation in one country discourages other countries to export which decreases the imports.
  • This increases the number of exports and people prefer using domestically produced goods as they are more cheaper than the imported goods.
  • With increased aggregate demand for domestic goods, the country increases production level which leads to a rise in the nation's output.
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