Difficulty: Easy
Correct Answer: Both (A) and (R) are true, and (R) is the correct explanation of (A).
Explanation:
Introduction / Context:
This problem examines basic international economics: how nominal exchange rate changes affect the foreign-currency prices of a country’s exports and, therefore, export competitiveness.
Given Data / Assumptions:
Concept / Approach:
Devaluation typically reduces the foreign-currency price of domestically produced goods (holding domestic costs and margins constant), improving price competitiveness of exports. We check truth of A and R and then causal adequacy of R in explaining A.
Step-by-Step Solution:
1) R is true by premise: devaluation occurred.2) If exporters adjust minimally, the foreign-currency price falls, making products “attractive” to importers abroad; hence A is true.3) The explanation is direct: devaluation lowers relative price, boosting price-based competitiveness; thus R correctly explains A.
Verification / Alternative check:
Export surges are often associated with sustained devaluation episodes, controlling for demand, costs, and non-price factors (quality, logistics).
Why Other Options Are Wrong:
(b) denies the clear price mechanism; (c)/(d) conflict with the given premises; “None” is unnecessary.
Common Pitfalls:
Ignoring other determinants (elasticities, hedging, imported inputs) which may dampen effects. But they do not negate the basic explanatory link.
Final Answer:
Both A and R are true, and R correctly explains A.
Discussion & Comments