Exchange Rate and Purchasing Power Quick Check

Question

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Question
If the United Kingdom's pound sterling is depreciating with respect to currencies in the rest of the world, which of the following correctly explains the resulting impact on the United Kingdom's balance of trade?(1 point)
Responses

The United Kingdom will likely export more goods, increasing its balance of trade with the rest of the world
The United Kingdom will likely export more goods, increasing its balance of trade with the rest of the world

The United Kingdom will likely import more goods, increasing its balance of trade with the rest of the world.
The United Kingdom will likely import more goods, increasing its balance of trade with the rest of the world.

The United Kingdom will likely export more goods, decreasing its balance of trade with the rest of the world.
The United Kingdom will likely export more goods, decreasing its balance of trade with the rest of the world.

The United Kingdom will likely import more goods, decreasing its balance of trade with the rest of the world.

Answer 1

When a currency depreciates, it makes that country's goods cheaper to foreign buyers while making foreign goods more expensive for domestic consumers. In this case, if the United Kingdom's pound sterling is depreciating, the likely outcome would be:

• The United Kingdom will likely export more goods, increasing its balance of trade with the rest of the world.

This response correctly reflects the expected impact of currency depreciation on exports and the balance of trade.