Economics Q113

0. The government of a country experiencing full employment depreciates its currency in order to reduce a trade deficit. As a result, which of the following will most likely cause the country’s domestic spending to decline relative to income?

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Option : C
Explanation : At full employment, a weaker currency reduces the purchasing power of all domestic currency denominated assets. Households respond by reducing general expenditures and increasing savings. This is known as the wealth effect.

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