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InterviewSolution
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Explain the effect of rise in foreign exchange rate on (a) balance of trade and (b) national income. |
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Answer» (a) Rise in foreign exchange rate makes imports costlier and exports cheaper. This will reduce demand for imports and increase demand for exports. This will have positive effect on balance of trade. (b) Since rise in foreign exchange rate reduces imports and increase exports, it has a positive effect on GDP. Through the expenditure method of estimating GDP, rise in exports raises GDP while fall in imports also raises GDP. |
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