Chapter 18, Problem 21AA

To determine

To evaluate: The effect on American exports if the value of the dollar fell in relation to other currencies.

Explanation of Solution

Currency depreciation (devaluation) raises the quantity of exports and decreases the amount of imports, all of which have a beneficial impact on the trade balance, that is, they can decrease the trade deficit or raise the trade surplus. Some of the advantages of devaluation are Exports to international customers; they get the goods at a lower price. This thus provides a boost to domestic demand and may contribute to the development of jobs in the export sector.

Economics Concept Introduction

Introduction: The balance of trade of a country is noted by its net exports, and is determined by all variables that are affecting world trade. These include donation and productivity variables, trade policies, rates of exchange, reserves of foreign currency, inflation and demand.