Final answer:
A nominal depreciation of the domestic currency typically leads to lower relative prices for domestic goods, increasing demand for those goods on the world market, which can decrease domestic unemployment.
Step-by-step explanation:
When domestic currency depreciates, and assuming that domestic (P) and foreign (P*) price levels remain constant, the cost of domestic goods relative to foreign goods decreases. This reduced cost makes domestic goods cheaper for foreign buyers, potentially leading to an increase in world demand for domestic goods.
As demand for domestic goods increases, domestic businesses may increase production to meet this demand, which could result in a decrease in the domestic unemployment rate. This effect can be further understood by considering that with higher demand for domestic exports, workers in export industries are likely to find more employment opportunities, reducing overall unemployment. However, it is worth noting that these effects depend on a variety of factors including the elasticity of demand for goods, the ability of the economy to ramp up production, and how competitors respond.
In summation, nominal depreciation of the domestic currency can make domestic goods more attractive on the international market, potentially boosting demand for these goods and benefiting the domestic labor market through decreased unemployment.