When price of a foreign currency rises, its supply also rises. Explain why.
When the price of foreign currency rises, this implies that the domestic goods have become cheaper for the foreign residents. This is because they can now buy more goods and services with same worth of foreign currency. As a result, the foreign demand for domestic products rises. This leads to an increase in the exports of domestic country. As a result, the domestic country receives more foreign currency and its supply rises.
For example, suppose the rupee-dollar exchange rate (price of dollars in terms of rupees) rises from say, from $1= Rs 50 to $1= Rs 52. This implies that the foreign residents can now buy Rs 52 worth of goods with the same one dollar. Thus, the demand for domestic goods increases. As a result, the supply of dollars increases.
Given that national income is Rs.80 crore and consumption expenditure Rs.64 crore, find out average propensity to save. When income rises to Rs.100 crore and consumption expenditure to Rs.78 crore, what will be the average propensity to consume and the marginal propensity to consume?
Explain the relationship between investment multiplier and marginal propensity to consume.
Explain how 'distribution of gross domestic product' is a limitation in taking gross domestic product as an index of welfare.
