Correct answer: (a) 1 only
Explanation
- A
1 only
1 only. Devaluation cheapens exports in foreign-currency terms. It does not raise the foreign value of the home currency, and the trade balance need not improve (J-curve, elasticities).
- B
1 and 2
1 and 2. Statement 2 is the opposite of devaluation.
- C
3 only
3 only. Trade balance is not a necessary result.
- D
2 and 3
2 and 3. Both fail.
Summary. Official key is (a) 1 only. A cheaper rupee makes exports more competitive abroad. The rupee’s foreign value falls, not rises. Whether the trade balance improves depends on elasticities — it is not necessary.
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