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Chapter 18: Q. 2 (page 495)

鈥淎 country is always worse off when its currency is weak (falls in value).鈥� Is this statement true, false, or uncertain? Explain your answer.

Short Answer

Expert verified

The statement is uncertain.

Step by step solution

01

Concept Introduction

Currency depreciation is a decrease in the value of money in terms of its interchangeability with other monetary forms. Money depreciation can be caused by a variety of factors, including monetary constraints, loan fee differentials, political shakiness, and risk avoidance among financial backers.

02

Explanation

When one nation's currency loses its purchasing power, it loses value in relation to other currencies. This can result in two problems. Because of the depreciation of other currencies, imported goods will be more affordable in the international market. As a result, it will be easier for domestic manufacturers to sell their goods in global markets. The local buyer, on the other hand, will discover that the foreign good is more expensive in the local market. So whether the country is in worse shape or not, remarking on the above-mentioned situation will certainly be difficult. As a result, the response to the inquiry is unclear.

03

Final Answer 

Hence, the statement 鈥淎 country is always worse off when its currency is weak (falls in value)鈥� is uncertain.

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