Question : Which of the following is a potential drawback of currency appreciation for an export-driven economy?
Option 1: Increased purchasing power of domestic consumers.
Option 2: Decreased competitiveness of exported goods.
Option 3: Higher import costs.
Option 4: All of the above.
Correct Answer:
Decreased competitiveness of exported goods.
Solution : The correct answer is b) Decreased competitiveness of exported goods.
A potential drawback of currency appreciation for an export-driven economy is the decreased competitiveness of exported goods. When a country's currency appreciates, it becomes stronger relative to other currencies. This means that the price of its goods and services in international markets increases, making them more expensive for foreign buyers. As a result, the country's exports may become less competitive compared to those of countries with weaker currencies.
