Question : Assertion: Appreciation of a country's currency can lead to a decrease in its inflation rate.
Reason: A stronger currency reduces the cost of imported goods, thereby lowering inflationary pressures.
Option 1: True, as imported goods become relatively cheaper, reducing inflationary pressures.
Option 2: True, only if the country has a high dependence on imported goods.
Option 3: False, as currency appreciation has no impact on a country's inflation rate.
Option 4: False, as currency appreciation leads to higher inflation due to increased purchasing power.
Correct Answer: True, as imported goods become relatively cheaper, reducing inflationary pressures.
Solution : The answer is (a) True, as imported goods become relatively cheaper, reducing inflationary pressures.
Appreciation of a country's currency can indeed lead to a decrease in its inflation rate. When a country's currency appreciates, the cost of imported goods becomes relatively cheaper. This can lead to a decrease in the prices of imported goods, which in turn reduces inflationary pressures. If a country has a high dependence on imported goods, the impact of currency appreciation on lowering inflation can be more significant. Therefore, a stronger currency can contribute to a decrease in the country's inflation rate.
Question : Currency appreciation can negatively impact a country's ________, as it makes the country's exports more expensive.
Option 1: trade balance
Option 2: foreign investment
Option 3: inflation rate
Option 4: unemployment rate
Question : Assertion: A depreciating exchange rate benefits a country's tourism industry.
Reason: A weaker domestic currency makes traveling to the country more affordable for foreign tourists.
Option 1: True, as a weaker currency reduces the cost of accommodation and travel expenses.
Option 2: True, only if the country has a strong domestic tourism industry.
Option 3: False, as a depreciating exchange rate discourages foreign tourists.
Option 4: False, as exchange rates have no impact on the tourism industry.
Question : A decrease in a country's exports is likely to result in:
Option 1: Appreciation of its currency
Option 2: Depreciation of its currency
Option 3: No impact on its currency
Option 4: A fixed exchange rate
Question : Assertion: Appreciation of a country's currency can have a negative impact on its tourism industry.
Reason: A stronger currency makes traveling to the country more expensive for foreign tourists.
Option 1:
Both Assertion and Reason are true and correct explanation
Option 2: Both Assertion and Reason are true and incorrect explanation
Option 3: Assertion is true but Reason is false
Option 4: Assertion is false but Reason is true
Question : Assertion: Fluctuations in foreign exchange rates impact a country's imports and exports.
Reason: Changes in exchange rates affect the relative prices of goods and services, making imports more expensive and exports more competitive.
Option 1: True for a country with fixed exchange rates.
Option 2: True only for countries with a large trade deficit.
Option 3: True, as exchange rate fluctuations impact the competitiveness of a country's goods and services in the global market.
Option 4: False, as foreign exchange rates have no influence on a country's imports and exports.
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