Currency Depreciation Increases Import Costs

Steps:

• Turkish currency depreciation makes Egyptian goods more expensive for Turkish importers.
• Higher import prices reduce Turkey's demand for Egyptian goods, lowering Egypt's export production.
• Cheaper Turkish currency encourages Turkey to substitute imports with domestic production.
• Result: Egypt produces less, Turkey produces more.

Why B is correct:

• Depreciation raises the relative price of imports, promoting import substitution in Turkey per the terms-of-trade effect.

Why the others are wrong:

• A: Turkey's production increases due to import substitution, not decreases.
• C: Egypt's production decreases as exports to Turkey become less competitive.
• D: Egypt's production falls from reduced export demand, not increases.

Final answer: B