At the start of a particular period, a country tries to improve the current account of its balance of payments by devaluing its currency. The outcome of this policy over the next two years is shown in the diagram. Which statement is most likely to account for this outcome?
- AIn the short run, the price elasticity of demand for exports and imports was very low.
- BThe domestic inflation rate fell after 12 months before having the desired result.
- CThe elasticity of demand for imports diminished after 12 months.
- DThe policy was ineffective and other factors must have led to an improvement in the current account.