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.
Question : Which of the following is a potential benefit of currency appreciation for an import-dependent economy?
Question : A decrease in the real exchange rate implies:
Question : An increase in the nominal exchange rate indicates:
Question : Depreciation of a country's currency can have a positive impact on its:
Question : Which of the following is an example of a capital outflow in the balance of payments?
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