contestada

A rapidly growing trade deficit affects a country's currency by:
A. allowing its value to inflate at a rate determined by the country.
B. preventing it from being used in international trade.
C. causing it to use a fixed rather than a flexible exchange rate.
D. causing its value to drop relative to other currencies.

Respuesta :

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Answer:

D. Causing its value to drop relative to other currencies

Explanation:

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Trade deficit that is rapidly growing will have impact on a country's currency by causing its value to drop relative to other currencies. Hence, Option D is correct.

What is the trade deficit?

When a country's currency is in the state of floating exchange rate regime, a kind  of downward pressure is created on it. This pressure is known as trade deficit. When there is availability of cheaper domestic currency, country has to bear expensive import.

Consumption of imported goods will reduce by the consumers and slowly they will move towards the domestic products. So when there is a rapidly growing trade deficit, it will result in a drop in the value relative to other currencies.

Therefore, Option D is correct.

Learn more about trade deficit from here:

https://brainly.com/question/25313034

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