Incorrect Statement Analysis:

1. Bretton Woods System re-established a system of Fixed Exchange Rate: This statement is correct. The Bretton Woods System was established in 1944 to create a new international monetary framework after World War II. One of its key features was the establishment of a fixed exchange rate system, where participating countries agreed to peg their currencies to the U.S. dollar, which was in turn pegged to gold.

2. Under the Fixed Exchange Rate system, when a government increases the exchange rate making the domestic currency cheaper, it is called devaluation: This statement is incorrect. In a fixed exchange rate system, when a government reduces the exchange rate, making the domestic currency cheaper, it is called devaluation. On the other hand, when a government increases the exchange rate, making the domestic currency more expensive, it is called revaluation.

Explanation:

The Bretton Woods System was established to provide a stable international monetary system after the volatility and economic disruptions of the interwar period. It aimed to promote international trade and economic stability by maintaining fixed exchange rates between currencies.

Under the Bretton Woods System, participating countries agreed to peg their currencies to the U.S. dollar at a fixed exchange rate, and the U.S. dollar was in turn pegged to gold at a fixed price. This meant that the value of each currency was fixed in terms of gold and the U.S. dollar.

The system allowed countries to maintain stable exchange rates by intervening in foreign exchange markets. If a country's currency was under pressure to depreciate, the central bank would sell its foreign reserves and buy its own currency to support its value. Conversely, if a country's currency was under pressure to appreciate, the central bank would sell its own currency and buy foreign currency to reduce its value.

In the context of fixed exchange rates, devaluation refers to a deliberate decision by a government to reduce the value of its currency in relation to other currencies. This makes the domestic currency cheaper, which can boost exports and make imports more expensive. Devaluation is often used as a policy tool to improve a country's trade balance and stimulate economic growth.

On the other hand, revaluation refers to a deliberate decision by a government to increase the value of its currency in relation to other currencies. This makes the domestic currency more expensive, which can reduce exports and make imports cheaper. Revaluation is less common and is typically used to combat inflationary pressures or to address balance of payment issues.

Therefore, the correct answer is option D - Neither 1 nor 2.