Increase in the value of foreign commodities in term of domestic curre...
When the value of foreign goods increases, this indicates decrease in the value of domestic currency. As this situation is planned by the government so, it will be referred to as devaluation.
Increase in the value of foreign commodities in term of domestic curre...
Devaluation refers to a decrease in the value of a domestic currency in relation to foreign currencies. However, the question states that the increase in the value of foreign commodities in terms of domestic currency is planned by the government. Therefore, the correct answer is option B - Devaluation.
Explanation:
1. Definition of devaluation:
- Devaluation is a deliberate decrease in the value of a country's currency relative to other currencies.
- It is typically done by a country's government or central bank as a policy measure to stimulate exports, reduce trade deficits, or boost economic growth.
2. Increase in the value of foreign commodities:
- When the value of foreign commodities increases in terms of domestic currency, it means that it takes more domestic currency to purchase the same amount of foreign goods.
- This situation can occur due to various factors such as changes in exchange rates, inflation, or changes in the supply and demand of goods.
3. Devaluation and its impact on foreign commodities:
- Devaluation can lead to an increase in the prices of imported commodities in the domestic market.
- When a country's currency is devalued, it becomes relatively weaker compared to other currencies.
- As a result, the cost of importing goods increases, as more domestic currency is required to purchase the same amount of foreign goods.
- This increase in the prices of imported commodities can have implications for the domestic economy, consumers, and businesses.
4. Purpose of devaluation:
- Devaluation is often used as a policy tool to make a country's exports more competitive in the global market.
- By reducing the value of the domestic currency, a country's exports become cheaper for foreign buyers, leading to increased demand and higher export volumes.
- This can help to boost the country's export earnings, improve the trade balance, and stimulate economic growth.
In conclusion, the planned increase in the value of foreign commodities in terms of domestic currency refers to devaluation. Devaluation is a deliberate policy measure taken by the government to decrease the value of the domestic currency and increase the prices of imported goods.