Devaluation means

  1. Depreciation of the fixed assets
  2. Increase in the currency value in terms of foreign currency
  3. Reduction in the external value of currency
  4. Fall in valuation of the essentials in an economy
Monis Rasool Professor Asked on 6th September 2015 in Economics.
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    Reduction in the external value of currency

    Devaluation refers to a decrease in a currency’s value with respect to other currencies. Devaluating a currency by the government issuing the currency, and unlike depreciation is not the result of non-governmental activities.  There are effects of a devaluation:

    • Exports cheaper
    • Imports more expensive
    • Increased AD.
    • Inflation is likely to occur because:
      • Imports are more expensive causing cost push inflation.
      • AD is increasing causing demand pull inflation
      • With exports becoming cheaper manufacturers may have less incentive to cut costs and become more efficient. Therefore over time, costs may increase.
    Monis Rasool Professor Answered on 12th September 2015.
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