Empirical Evidence Regarding the Effects of Currency Devaluation on the Balance

question 11

Multiple Choice

Empirical evidence regarding the effects of currency devaluation on the balance of trade indicates that

• A) complete exchange-rate pass-through generally occurs.
• B) partial exchange-rate pass-through generally occurs.
• C) currency devaluations always improve the trade balance in the short run.
• D) currency devaluations always worsen the trade balance in the long run.

---

Definitions:

Operating Costs

Expenses associated with the day-to-day functions of a business.

Depreciation Tax Shield

A reduction in taxable income resulting from the ability to deduct depreciation expenses, thereby lowering the tax liability for a business.

CCA Deduction

Stands for Capital Cost Allowance deduction, a tax deduction in certain jurisdictions that allows businesses to deduct the depreciated value of capital assets.

Corporate Tax Rate

The tax rate imposed on the net income of a corporation by the government.