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Devaluation Depreciation It Occurs When the Currency Exchange Rate is Officially Lowered Under Fixed Exchange Rate System. When the Value of Currency Falls as Compared to Other Currencies - Economics

Distinguish Between

Differentiate between devaluation and depreciation.

Distinguish between the depreciation of currency and devaluation of a currency.

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Solution 1

Devaluation

Depreciation

It occurs when the currency exchange rate is officially lowered under fixed exchange rate system.

When the value of currency falls as compared to other currencies, it is known as depreciation.

It exists under fixed exchange rate.

It exists under flexible exchange rate.

It is due to government’s decision

It is due to the demand and supply forces.

Solution 2

The difference between the depreciation of currency and devaluation of the currency is given as follows:

Basis Depreciation Devaluation
Definition Currency depreciation implies that domestic currency has become less expensive in terms of foreign currency. Devaluation of a currency occurs when the currency exchange rate is officially lowered by the monetary authority.
Exchange rate system This is possible in a flexible exchange rate system This is possible in a fixed exchange rate system
Concept: Devaluation of a Currency
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APPEARS IN

NCERT Class 12 Economics - Introductory Macroeconomics
Chapter 6 Open Economy Macroeconomics
Exercise | Q 7 | Page 101
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