Given favorable elasticity conditions,a depreciation of the lira tends to result in:
A) Lower prices of imported products for Italy
B) Higher prices of imported products for Italy
C) A larger trade deficit for Italy
D) A smaller trade surplus for Italy

Question

Quizplus · Accepted Answer

When a currency depreciates, it makes imports more expensive, leading to higher prices of imported goods. This is because the cost of converting the depreciated currency into other currencies increases. Therefore, a depreciation of the lira would result in higher prices of imported products for Italy.

Given Favorable Elasticity Conditions,a Depreciation of the Lira Tends to Result