Question

Explain the impact of rise in exchange rate on national income.

Answer 1

Impact of rise in exchange rate on National income

Foreign exchange rate refers to the rate at which one currency is exchanged for the other. If the exchange rate rises from $1 = Rs 45 to $1 = Rs 60, the Indian rupee is said to be depreciated. It implies that there is fall in the value of domestic currency against foreign currency. Depreciation implies that domestic goods become cheaper in terms of foreign currency and hence the demand for exports increases.

As export increases, there will be increase in employment growth, aggregate demand which causes higher economic growth. This results in bigger share of national income.