Explain the impact of rise in exchange rate on national income.

ANSWER: Foreign exchange rate refers to the rate at which one currency is exchanged for the other. If  the exchange  rate  rises

from  $1  =  Rs  45  to  $1  =  Rs  60,  the  Indian  rupee  is  said  to be depreciated.It  implies  that  there  is  fall  in  the  value of  domestic currency  against  foreign currency. Depreciation  implies  that domestic  goods  become  cheaper in  terms  of  foreign currency and hence the demand for exports increases.As  export  increases,  there  will  be  increase  in  employment  growth,  aggregate  demand  which causes higher economic growth. This results in bigger share of national income.

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