Question : Assertion: Devaluation of Domestic currency refers to rise in National Income of domestic country.
Reason: Devaluation of Domestic currency refers to reduction in the value of domestic currency with respect to foreign currency, under fixed exchange rate system.
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: Assertion is false but Reason is true
Solution : The correct answer is d) Assertion is false but Reason is true.
Devaluation of a domestic currency refers to a deliberate decrease in the value of the currency relative to other currencies, typically under a fixed exchange rate system. This is done by a government or central bank to improve the competitiveness of domestic goods and services in international markets. It can make exports cheaper and imports more expensive.
However, the assertion that devaluation of domestic currency leads to a rise in national income is not necessarily true. While devaluation can potentially boost exports and improve the trade balance, its impact on national income depends on various factors such as the country's economic structure, external demand, and domestic policies. Devaluation alone does not guarantee an automatic increase in national income.
Therefore, the reason provided in the statement is true as it correctly defines devaluation, but the assertion that it leads to a rise in national income is false as it oversimplifies the relationship between devaluation and national income.
