WBCS.LIVE practice question

What is the primary intended economic effect of devaluing a national currency?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. To make domestic imports cheaper and exports more expensive.
  2. To lower the domestic inflation rate immediately.
  3. To make domestic exports cheaper and imports more expensive.
  4. To increase the overall foreign exchange reserves by borrowing.

Correct answer and explanation

Correct answer: To make domestic exports cheaper and imports more expensive.

Explanation: āœ… Correct Answer: C) To make domestic exports cheaper and imports more expensive. šŸ“š Explanation: Devaluation refers to the deliberate downward adjustment of the value of a country's currency relative to another currency or standard. The primary economic effect of devaluation is that it makes the country's exports significantly cheaper and more competitive in the international market. Conversely, it makes imported goods more expensive for domestic consumers, thereby helping to reduce chronic trade deficits.