Currency Depreciation Boosts Exports

Steps:

• A fall in the international value of a currency means depreciation, making the domestic currency weaker against foreign currencies.
• This lowers the foreign currency price of the country's exports, as foreigners need less of their currency to buy them.
• Cheaper exports increase foreign demand, assuming elastic demand.
• Higher demand leads to a rise in the volume of exports sold.

Why B is correct:

• Per the law of demand, lower foreign prices for exports increase quantity demanded, raising export volume.

Why the others are wrong:

• A: Depreciation causes a fall, not rise, in the foreign currency price of exports.
• C: Imports become more expensive in domestic currency, so their price rises, not falls.
• D: Depreciation often causes imported inflation, raising, not falling, the domestic price level.

Final answer: B