The correct answer is: D. prices of exports rise proportionately.
Devaluation of currency is a decrease in the value of a currency relative to other currencies. This can happen for a number of reasons, such as inflation, a decrease in demand for the currency, or an increase in supply of the currency.
When a currency is devalued, it makes exports more competitive in international markets. This is because the price of exports in foreign currency terms decreases. This can lead to an increase in demand for exports and an increase in exports.
In addition, devaluation can make imports more expensive. This is because the price of imports in domestic currency terms increases. This can lead to a decrease in demand for imports and a decrease in imports.
Overall, devaluation can lead to an increase in exports and a decrease in imports. This can improve a country’s trade balance and boost economic growth.
Here is a brief explanation of each option:
- Option A: prices of domestic goods remain constant. This would not be beneficial for a country because it would mean that the country’s exports would become more expensive in foreign currency terms. This would lead to a decrease in demand for exports and a decrease in exports.
- Option B: prices of exports remain constant. This would be beneficial for a country because it would mean that the country’s exports would become more competitive in international markets. This would lead to an increase in demand for exports and an increase in exports.
- Option C: prices of imports remain constant. This would not be beneficial for a country because it would mean that the country’s imports would become cheaper in domestic currency terms. This would lead to an increase in demand for imports and an increase in imports.
- Option D: prices of exports rise proportionately. This would be beneficial for a country because it would mean that the country’s exports would become more competitive in international markets. This would lead to an increase in demand for exports and an increase in exports.