ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Likely to rise
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Likly to fall
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Likely to rise and fall both
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Not affected
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Detailed explanation-1: -Solution. Other things remaining unchanged, when in a country the price of foreign currency rises, national income is likely to rise.
Detailed explanation-2: -Answer: When the prices of foreign currency falls, the national income is likely to fall.
Detailed explanation-3: -When price of a foreign currency rises domestic goods become relatively cheaper. It induces the foreign country to increase their imports from the domestic country. As a result supply of foreign currency rises.
Detailed explanation-4: -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.
Detailed explanation-5: -(i) when the price of a foreign currency rises, the imports become costlier and exports become cheaper so the value of imports will fall with time, hence the demand for foreign exchange will fall.