Question

Other things remaining unchanged, when in a country the price of foreign currency rises, national income is: (choose the correct alternative)

a. Likely to rise
b. Likely to fall
c. Likely to rise and fall both
d. Not affected

Answer 1

Likely to rise

Currency depreciation takes place when there is an increase in the price of a foreign currency in terms of the domestic currency. Here, more rupees are required to buy one dollar, i.e. the value of domestic currency becomes less valuable in relation to a foreign currency. So, the quantum of imports will reduce and the exports will increase, and thereby, it leads to an increase in national income.