"First of all I would look at it as not rupee sliding, I would look at it as dollar strengthening, dollar strengthening incessantly" said Nirmala Sitaraman after attending the Annual meetings of the IMF and the world Bank
Based on the above passage, answer the questions mentioned below :
If there is depreciation of domestic currency then what likely impact will it have on exports of the country and national income ?
Answer & explanation
Correct answer: option 1
The correct answer is option (1) : Increase in National Income and increase in exports
Increase in exchange rate implies that the price of foreign currency (dollar) in terms of domestic currency (rupees) has increased. This is called Depreciation of domestic currency (rupees) in terms of foreign currency (dollars).
Depreciation makes the country's goods and services cheaper for foreign buyers when priced in their own currencies. This competitive pricing advantage tends to boost export volumes. Higher exports due to depreciation contribute positively to the country's GDP (Gross Domestic Product), which is a key component of national income. Additionally, increased export earnings can lead to higher economic activity, more jobs, and overall economic growth.