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.

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Definitions:

Budget Line

A budget line is a graphical representation of all possible combinations of two goods that can be purchased with a given budget, given their prices.

Money Income

The total amount of money earned or received by an individual or household from various sources before deductions such as taxes.

Noncash Gift-Giving

The act of giving gifts that are not in the form of money or monetary value, often personal or symbolic.

Marginal Utility

The increased utility or satisfaction derived by a buyer from the consumption of one extra unit of a good or service.