Question : Assertion: An increase in the exchange rate leads to a decrease in exports.
Reason: A higher exchange rate makes exports relatively more expensive, reducing their competitiveness.
Option 1: Both Assertion and Reason are true and correct explanation
Option 2: Both Assertion and Reason are true and incorrect explanation
Option 3: Assertion is true but Reason is false
Option 4: Assertion is false but Reason is true
Correct Answer: Both Assertion and Reason are true and correct explanation
Solution : The correct answer is (a) Both the Assertion and the Reason are true and provide a correct explanation.
The Assertion states that an increase in the exchange rate leads to a decrease in exports, which is true. When the exchange rate of a country's currency increases, it means that the currency has strengthened relative to other currencies. This makes the country's exports relatively more expensive in foreign markets, reducing their competitiveness. As a result, foreign buyers may choose to purchase fewer exports, leading to a decrease in export volumes.
The Reason states that a higher exchange rate makes exports relatively more expensive, reducing their competitiveness, which is also true and supports the Assertion. When the exchange rate is higher, it means that more units of the domestic currency are required to purchase a unit of foreign currency. This increases the price of exports in foreign currency terms, making them more expensive compared to goods produced in countries with weaker currencies.
Therefore, Both Assertion and Reason are true and provide a correct explanation.
