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Evaluating a Policy Statement on Currency Depreciation
A government official makes the following statement: "To boost our country's export competitiveness, we only need to focus on policies that cause our currency's nominal value to fall. A lower nominal exchange rate automatically makes our goods cheaper for foreigners and will guarantee a rise in net exports."
Critically evaluate this statement. In your answer, you must explain the relationship between the nominal exchange rate, relative price levels, and the real measure of a country's international competitiveness. Use this relationship to identify the key flaw in the official's argument.
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