How can currency depreciation stimulate an increase in net exports? 1. By reducing export costs 2. By reducing import prices Select the answer using the code given below:

Currency depreciation stimulates an increase in net exports primarily by reducing export costs (in foreign currency terms), making domestic goods cheaper and more competitive in international markets. Statement 1 is correct. However, currency depreciation INCREASES import prices (in domestic currency terms), not reduces them — imported goods become more expensive when the domestic currency loses value. This discourages imports, which also contributes to improving net exports, but the mechanism described in Statement 2 (reducing import prices) is incorrect. Therefore, only statement 1 is correct.