Multiple Choice QuestionA decline in the international value of its currency will reduce a nation's Blank______.Multiple choice question.importsterms of tradebalance of paymentsofficial reserves
Question
Multiple Choice QuestionA decline in the international value of its currency will reduce a nation's Blank______.Multiple choice question.importsterms of tradebalance of paymentsofficial reserves
Solution
The correct answer is "official reserves".
Step 1: Understand the question The question is asking what will decrease when a country's currency value decreases internationally.
Step 2: Analyze the options
- Imports: A decline in the value of a country's currency makes imports more expensive, not less. So, this is not the correct answer.
- Terms of trade: This refers to the ratio of an index of a country's export prices to an index of its import prices. A lower currency value could affect this, but it's not a direct relationship.
- Balance of payments: This is a record of all transactions made between one particular country and all other countries during a specified period of time. A lower currency value could affect this, but again, it's not a direct relationship.
- Official reserves: This refers to a country's holdings of foreign currency and gold. If the value of the country's currency decreases, its official reserves also decrease because its currency is worth less when converted to other currencies.
Step 3: Choose the correct answer So, the correct answer is "official reserves". A decline in the international value of a country's currency will reduce its official reserves.
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