Question

Other things remaining the same, when foreign currency becomes cheaper, the effect on national income is likely to be:

• A. Positive
• B. Negative
• C. Positive and negative both
• D. No effect

Answer 1

The correct option is B Negative

Price of foreign exchange and growth of national income is directly related. When foreign currency becomes cheaper, it indicates that demand of foreign exchange is higher than the supply of foreign exchange. Hence, other things remaining the same, when foreign currency becomes cheaper, the effect on national income is likely to be negative.