Which of the following is are the effects of devaluation or depreciation of curr ency 1 It leads to ...........

Indian Economy (CDS) Inflation

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Which of the following is/are the effects of devaluation or depreciation of curr ency ?

1. It leads to increase in imports and decrease in exports.

2. It leads to increase in exports and decrease in imports.

3. It leads to increase in domestic inflation.

It leads to' decrease in domestic inflation.

Select the correct answer using the code given below:

This questions was previously asked in

2023 CDS -2 GK

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1 and 3 only

1 and 4 only

2 and 3 only

3 only

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Explanation:

- Statement 1: Devaluation usually makes domestic goods cheaper for foreigners, leading to a decrease in imports and an increase in exports. This statement is incorrect.

- Statement 2: Devaluation leads to an increase in exports due to lower prices for international buyers and a decrease in imports as foreign products become more expensive. This statement is correct.

- Statement 3: Devaluation can lead to domestic inflation because the cost of imported goods and services rises, pushing up general price levels. This statement is correct.

- Statement 4: Devaluation typically does not lead to a decrease in domestic inflation. This statement is incorrect.

Based on the explanation above, the correct option is:

- Option 3: 2 and 3 only