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| Ceteris paribus, when the price of foreign currency falls, what will happen to the national income of the country? |
Likely to fall Likely to rise Likely to remain unaffected May rise or fall |
| Likely to rise |
| Suppose, One dollar = 70 rupees. Increase in foreign exchange rate means now one dollar = 140 rupees. Earlier, one commodity costing ₹ 70 was exported and American paid one dollar only. Now if one dollar = 140 rupees. Now, American will have to pay half dollar for the same commodity costing 70 rupees. So, Indian goods got cheaper for Americans. So, they will demand more Indian goods. As price falls, demand increases. Hence, Indian exports will increase. Imports will fall as foreign goods get expensive. Both will lead to rise in domestic production. This leads to rise in national income. |
