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What will be the most likely impact on the national income when in a country the price of foreign currency rises, keeping other things unchanged?
  • a)
    Likely to rise
  • b)
    Likely to fall
  • c)
    Likely to rise and fall both
  • d)
    Not affected
Correct answer is option 'A'. Can you explain this answer?
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What will be the most likely impact on the national income when in a c...
Impact of Rising Foreign Currency Price on National Income

When the price of foreign currency rises, the most likely impact on the national income of a country is that it will rise. This can be explained through the following points:

1. Increase in Exports: When the price of foreign currency rises, the value of the domestic currency falls. This makes exports cheaper and more attractive, leading to an increase in exports. As a result, the country's foreign exchange earnings increase, which contributes to the national income.

2. Decrease in Imports: When the domestic currency weakens, the cost of imports increases. This makes imports more expensive and less attractive, leading to a decrease in imports. As a result, the country's foreign exchange outflow decreases, which contributes to the national income.

3. Boost in Tourism: A weaker domestic currency makes the country a more affordable destination for foreign tourists. This leads to an increase in tourism, which contributes to the national income.

4. Increase in Foreign Investment: A weaker domestic currency makes the country's assets cheaper for foreign investors. This leads to an increase in foreign investment, which contributes to the national income.

In conclusion, a rise in the price of foreign currency can have a positive impact on a country's national income. It can lead to an increase in exports, a decrease in imports, a boost in tourism, and an increase in foreign investment.
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What will be the most likely impact on the national income when in a c...
ise in exchange rate leads to depreciation of domestic currency. Depreciation of currency encourages exports and inflow of foreign exchange. This process is likely to have a positive impact on the national income of the country.
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What will be the most likely impact on the national income when in a country the price of foreign currency rises, keeping other things unchanged?a)Likely to riseb)Likely to fallc)Likely to rise and fall bothd)Not affectedCorrect answer is option 'A'. Can you explain this answer?
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