Under fixed exchange rate, which one of the following statements is the most accurate?
A) Devaluation causes a rise in output.
B) Devaluation causes a decrease in output.
C) Devaluation has no effect on output.
D) Devaluation causes a rise in output and a decrease in official reserves.
E) Devaluation causes a decrease in output and in official reserves.

Question

Quizplus · Accepted Answer

Devaluation under a fixed exchange rate makes exports cheaper and imports more expensive, leading to an increase in net exports and thus a rise in output.

Under Fixed Exchange Rate, Which One of the Following Statements