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Other Things Remaining the Same, When the Foreign Currency Becomes Cheaper, the Effect on National Income is Likely to Be : (Choose the Correct Alternative) - CBSE (Arts) Class 12 - Economics

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Question

Other things remaining the same, when the foreign currency becomes cheaper, the effect on national income is likely to be : (Choose the correct alternative)

a. Positive
b. Negative
c. Positive and negative both
d. No effect

Solution

Negative

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

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Solution Other Things Remaining the Same, When the Foreign Currency Becomes Cheaper, the Effect on National Income is Likely to Be : (Choose the Correct Alternative) Concept: Concept of Foreign Exchange Rate.
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