Question : Depreciation of a country's currency can result in:
Option 1: Increased competitiveness in the export market.
Option 2: Higher prices for imported goods.
Option 3: Increased tourism.
Option 4: All of the above.
Correct Answer: All of the above.
Solution : The correct answer is d) All of the above.
Depreciation of a country's currency can result in all of the mentioned effects:
a) Increased competitiveness in the export market: When a country's currency depreciates, its goods and services become relatively cheaper for foreign buyers. This can lead to increased demand for exports and increased competitiveness in the global market.
b) Higher prices for imported goods: A depreciated currency means that it takes more units of the domestic currency to purchase foreign currencies. This leads to higher import costs, which can result in higher prices for imported goods.
c) Increased tourism: A depreciated currency can make a country a more affordable destination for foreign tourists. The lower exchange rate means that foreign visitors can get more of the domestic currency for their money, making travel and tourism relatively cheaper
Question : Assertion: Appreciation of a country's currency can lead to a decrease in its inflation rate.
Reason: A stronger currency reduces the cost of imported goods, thereby lowering inflationary pressures.
Question : Which of the following is a potential drawback of currency appreciation for an export-driven economy?
Question : A decrease in the real exchange rate implies:
Question : A decrease in a country's exports is likely to result in:
Question : Depreciation of a country's currency can have a positive impact on its:
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