Question

In an economy open to trade, the exchange rate matters because:

A) A depreciation of the domestic currency boosts imports and output

B) A depreciation of the domestic currency boosts imports and depresses output

C) An appreciation of the domestic currency boosts exports and output

D) An appreciation of the domestic currency boosts exports and depresses output

E) None of the above

Answer 1

Exchange rate matters a lot in open trade because if there is a depreciation of currency, imports become more expensive and exports become more cheap for the foreign countries as a result of which can boost the economy and therefore depreciation offer currency boost exports and not imports and that's the reason why

If a currency appreciates, imports become cheap and exports become costly foreign countries as a result of which imports increase with which they substitute the output of the country as a result of which output can decrease on the whole because the exports also decrease

Therefore (a,b,c,d) are wrong

And (e) none of the above is the answer to this question