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WAEC Economics 2019 Question 45

Question 45

Balance of Payments and Exchange Rates

Devaluation of currency may not correct a balance of payments deficit if the demand for export is

  1. A.perfectly inelastic.
  2. B.perfectly elastic.
  3. C.fairly elastic.
  4. D.unitary elastic.
Show the answer and explanation

Answer: A (perfectly inelastic.)

Explanation

If export demand does not respond to the lower price, export earnings fall and the deficit is not corrected.