Suppose that the United Kingdom devalues the pound if both exports and imports are written in terms of pounds then the United Kingdom balance of trade during a currency contract period ?
Correct answer: C. is unaffected
- A. improves
- B. worsens
- C. is unaffected
- D. falls for a while before increasing
Explanation
When both exports and imports are contracted in pounds, their pound values are fixed during the currency contract period. Devaluation therefore leaves the United Kingdom’s pound-denominated balance of trade unaffected in that period.
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