CBSE 2024, Set 3

Question

Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Ceteris Paribus, Devaluation of domestic currency leads to an increase in National Income of a nation.
Reason (R): Devaluation of domestic currency refers to reduction in the value of domestic currency with respect to foreign currency, under the fixed exchange rate system. A). Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A). B). Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A). C). Assertion (A) is true, but Reason (R) is false. D). Assertion (A) is false, but Reason (R) is true.

Edvaya · Accepted Answer

The correct answer is Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).. Assertion (A) is true because devaluation makes exports cheaper and imports costlier, increasing net exports. A rise in net exports boosts aggregate demand, which in turn increases national income. Reason (R) is also true as it correctly defines devaluation. However, Reason (R) is merely a definition and does not explain *why* national income increases due to devaluation.

Edvaya Target

Edvaya Aspire

Take a Free Mock Test

Target Subjects

Aspire Subjects

Subject Mastery

Economics > Introductory Macroeconomics > Foreign Exchange Rate

Keep Practicing

Current Question

Community Stats

Track Your Progress

Edvaya Target

We Value Your Privacy