| Other things remaining unchanged, when in a country the price of foreign currency rises, national income is: (choose the correct alternative) |
| (a) Likely to rise |
| (b) Likely to fall |
| (c) Likely to rise and fall both |
| (d) Not affected |
Answer:
When the prices of foreign currency rises, the national income is likely to rise. This is because rise in foreign prices will lead to increase in the one of the components of national income i.e. net exports. That is, exports will increase and imports will decrease (as imports have become expensive), this will ultimately lead to increase in national income. Hence, the correct answer is option (a).
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