Which of the following is/are the effects of devaluation or depreciation of currency ? 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. 4

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Q: 63 (CDS-II/2023)
Which of the following is/are the effects of devaluation or depreciation of currency ?
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.
4. It leads to decrease in domestic inflation.
Select the correct answer using the code given below :
(a) 1 and 3 only
(b) 2 and 3 only
(c) 1 and 4 only
(d) 3 only

question_subject: 

Economics

question_exam: 

CDS-II

Currency devaluation typically leads to an increase in exports and a decrease in imports because a weaker currency makes exports cheaper and imports more expensive. Additionally, devaluation is likely to cause an increase in domestic inflation due to higher import prices and increased demand for exports, leading to both cost-push and demand-pull inflation. Therefore, the correct answer is option 2: 2 and 3 only.