Question : Assertion: An increase in the exchange rate can lead to an increase in aggregate supply.
Reason: A higher exchange rate makes imports more expensive, thereby encouraging domestic production and increasing aggregate supply.
Option 1: Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
Option 2: Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Option 3: Assertion is correct, but the Reason is incorrect.
Option 4: Assertion is incorrect, but the reason is correct
Correct Answer: Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Solution : The correct answer is (B).Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
The assertion is correct. When the exchange rate increases, it means that the value of the domestic currency has decreased relative to foreign currencies. This makes imported goods more expensive for domestic consumers. As a result, domestic consumers may switch to buying domestically produced goods. This increased demand for domestically produced goods can lead to an increase in aggregate supply.
However, the reason is not the correct explanation of the assertion. The reason states that a higher exchange rate makes imports more expensive, thereby encouraging domestic production and increasing aggregate supply. This is true, but it is not the only reason why an increase in the exchange rate can lead to an increase in aggregate supply.
Therefore, both the assertion and the reason are correct, but the reason is not the correct explanation of the assertion.
Question : Assertion: An increase in government regulations can positively impact aggregate demand.
Reason: Government regulations ensure fair competition and consumer protection, which can increase consumer confidence and lead to higher spending, thereby boosting aggregate demand.
Question : Assertion: An increase in government spending will always lead to an increase in aggregate demand.
Reason: Government spending directly stimulates consumer spending and business investment, leading to an increase in aggregate demand.
Question : Assertion: An increase in aggregate supply will always result in economic growth.
Reason: When aggregate supply increases, it leads to increased production and output, which is indicative of economic growth.
Question : Assertion: An increase in the interest rate can lead to an increase in aggregate demand.
Reason: Higher interest rates incentivize saving, which increases the pool of funds available for borrowing and investment, leading to an increase in aggregate demand.
Question : Assertion: Changes in aggregate supply can cause inflation in an economy.
Reason: Increases in aggregate supply can lead to higher production costs, which in turn can drive up prices and cause inflation.
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