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JAMB Economics 1993 Question 46

Question 46

Balance of Payments and Exchange Rates

Devaluation is effective when

  1. A.demand for imports is price inelastic
  2. B.demand for imports is neutral
  3. C.production for export is low
  4. D.demand for exports is price elastic
Show the answer and explanation

Answer: D (demand for exports is price elastic)

Explanation

Devaluation makes exports cheaper abroad; if foreign demand for them is elastic, export earnings rise a lot.