Which of the following statements is true. If exchange rate changes from $1 = ₹72 to ₹81.
A. Import will fall
B. Import will rise
C. Exports will rise
D. National Income will rise
E. National Income will fall
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → A, C and D only
Now one dollar costs ₹81 instead of ₹72. The price of foreign exchange has risen, which means the rupee has depreciated (lost value against the dollar). Foreign goods become dearer for Indians, and Indian goods become cheaper for foreigners.
(A) Import will fall — True. A foreign good now costs more rupees, so Indians buy fewer imports.
(B) Import will rise — False. Dearer foreign goods reduce imports, other things remaining constant.
(C) Exports will rise — True. Foreigners pay fewer dollars for Indian goods, so they buy more of them.
(D) National Income will rise — True. Higher exports and lower imports raise net exports, which are part of aggregate demand. Income rises to meet the higher demand.
(E) National Income will fall — False. Demand for Indian output goes up, not down, so income does not fall.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| – | 03-06 S1* | – | 29-05 S3 | – |
* A similar question.
NCERT (2026-27): “6.1.1 Current Account …Buying foreign goods is expenditure from our country and it becomes the income of that foreign country. Hence, the purchase of foreign goods or imports decreases the domestic demand for goods and services in our country. Similarly, selling of foreign goods or exports brings income to our country and adds to the aggregate domestic demand for goods and services in our country.… Demand for Foreign Exchange …A rise in price of foreign exchange will increase the cost (in terms of rupees) of purchasing a foreign good. This reduces demand for imports and hence demand for foreign exchange also decreases, other things remaining constant.… Supply of Foreign Exchange …A rise in price of foreign exchange will reduce the foreigner’s cost (in terms of USD) while purchasing products from India, other things remaining constant. This increases India’s exports and hence supply for foreign exchange may…” |