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Other things remaining unchanged,when in a country the price of foreign currency rises,national income is a) likely to rise b) likely to fall c) likely to rise and fall both d)no affected?
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Other things remaining unchanged,when in a country the price of foreig...
Effect of Rising Foreign Currency Prices on National Income
Introduction:
When the price of foreign currency rises in a country, it has various implications for the national income. In this response, we will analyze the possible effects and explain the reasons behind them.
Possible Effects:
The impact of a rising foreign currency price on national income can be analyzed through the following possibilities:
1. Likely to Rise:
When the price of foreign currency rises, it becomes more expensive for domestic consumers to purchase imported goods and services. This encourages them to shift their demand towards domestically produced goods, leading to an increase in domestic production and sales. As a result, the national income is likely to rise.
2. Likely to Fall:
On the other hand, a rise in the price of foreign currency can also lead to a decrease in national income. This occurs when the country heavily relies on exports. A higher price of foreign currency makes the country's exports relatively more expensive, reducing their competitiveness in the international market. Consequently, the demand for exports declines, leading to a decrease in national income.
3. Likely to Rise and Fall Both:
In some cases, the impact of rising foreign currency prices may vary across different sectors of the economy. While sectors relying on domestic production may experience an increase in national income, export-oriented sectors may suffer a decline. Therefore, national income can both rise and fall simultaneously, depending on the composition and structure of the economy.
Explanation:
The impact of rising foreign currency prices on national income depends on the country's economic structure, exchange rate regime, and the extent of its integration into the global economy.
- Economic Structure: Countries with a more diversified economy, including a mix of domestic production and export-oriented sectors, are less likely to experience a significant decline in national income. This is because the negative impact on export-oriented sectors can be offset by increased production in other sectors.
- Exchange Rate Regime: Countries with a fixed exchange rate regime may face difficulties in adjusting to a rise in foreign currency prices. This can limit their ability to maintain competitiveness in the global market, potentially leading to a decline in national income.
- Global Economic Integration: Countries highly integrated into the global economy may be more vulnerable to changes in foreign currency prices. Their national income can be significantly affected by shifts in international demand and competitiveness.
Conclusion:
In conclusion, the impact of rising foreign currency prices on national income can vary depending on the economic structure, exchange rate regime, and level of global economic integration. While it is possible for national income to rise, fall, or experience both simultaneously, the specific outcome will depend on the unique circumstances of each country.
Introduction:
When the price of foreign currency rises in a country, it has various implications for the national income. In this response, we will analyze the possible effects and explain the reasons behind them.
Possible Effects:
The impact of a rising foreign currency price on national income can be analyzed through the following possibilities:
1. Likely to Rise:
When the price of foreign currency rises, it becomes more expensive for domestic consumers to purchase imported goods and services. This encourages them to shift their demand towards domestically produced goods, leading to an increase in domestic production and sales. As a result, the national income is likely to rise.
2. Likely to Fall:
On the other hand, a rise in the price of foreign currency can also lead to a decrease in national income. This occurs when the country heavily relies on exports. A higher price of foreign currency makes the country's exports relatively more expensive, reducing their competitiveness in the international market. Consequently, the demand for exports declines, leading to a decrease in national income.
3. Likely to Rise and Fall Both:
In some cases, the impact of rising foreign currency prices may vary across different sectors of the economy. While sectors relying on domestic production may experience an increase in national income, export-oriented sectors may suffer a decline. Therefore, national income can both rise and fall simultaneously, depending on the composition and structure of the economy.
Explanation:
The impact of rising foreign currency prices on national income depends on the country's economic structure, exchange rate regime, and the extent of its integration into the global economy.
- Economic Structure: Countries with a more diversified economy, including a mix of domestic production and export-oriented sectors, are less likely to experience a significant decline in national income. This is because the negative impact on export-oriented sectors can be offset by increased production in other sectors.
- Exchange Rate Regime: Countries with a fixed exchange rate regime may face difficulties in adjusting to a rise in foreign currency prices. This can limit their ability to maintain competitiveness in the global market, potentially leading to a decline in national income.
- Global Economic Integration: Countries highly integrated into the global economy may be more vulnerable to changes in foreign currency prices. Their national income can be significantly affected by shifts in international demand and competitiveness.
Conclusion:
In conclusion, the impact of rising foreign currency prices on national income can vary depending on the economic structure, exchange rate regime, and level of global economic integration. While it is possible for national income to rise, fall, or experience both simultaneously, the specific outcome will depend on the unique circumstances of each country.
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Other things remaining unchanged,when in a country the price of foreign currency rises,national income is a) likely to rise b) likely to fall c) likely to rise and fall both d)no affected?
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Other things remaining unchanged,when in a country the price of foreign currency rises,national income is a) likely to rise b) likely to fall c) likely to rise and fall both d)no affected? for Economics 2024 is part of Economics preparation. The Question and answers have been prepared according to the Economics exam syllabus. Information about Other things remaining unchanged,when in a country the price of foreign currency rises,national income is a) likely to rise b) likely to fall c) likely to rise and fall both d)no affected? covers all topics & solutions for Economics 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Other things remaining unchanged,when in a country the price of foreign currency rises,national income is a) likely to rise b) likely to fall c) likely to rise and fall both d)no affected?.
Other things remaining unchanged,when in a country the price of foreign currency rises,national income is a) likely to rise b) likely to fall c) likely to rise and fall both d)no affected? for Economics 2024 is part of Economics preparation. The Question and answers have been prepared according to the Economics exam syllabus. Information about Other things remaining unchanged,when in a country the price of foreign currency rises,national income is a) likely to rise b) likely to fall c) likely to rise and fall both d)no affected? covers all topics & solutions for Economics 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Other things remaining unchanged,when in a country the price of foreign currency rises,national income is a) likely to rise b) likely to fall c) likely to rise and fall both d)no affected?.
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