Question

"A depreciation makes imports more expensive and therefore leads to an increase in the value of imports."

Is this statement correct? Explain your answer.

Answer 1

"A depreciation makes imports more expensive and therefore leads to an increase in the value of imports."

The depreciation or devaluation of X currency will make the imports from the foreign lands more expansive in terms of X (for example, a dollar's worth of US goods will cost more in terms of the X currency) when the X currency depreciate.

Therefore, the higher price of imports will lead the individuals and firms in the country to import less and produce the goods in their own country. As a result of this, the increase in export and a decrease in import the net aggregate demand for domestic products will increase.

Conclusion- The depreciation makes the import expansive and because of this the level of import in a country decreases. Decreasing the value of import. The above statemnt is incorrect.