Question

Read the following statements – Assertion (A) and Reason (R) carefully. Choose the correct option from those given below :
Assertion (A): Other things remaining constant, devaluation of domestic currency may lead to rise in National Income of the nation.
Reason (R): Devaluation of domestic currency refers to reduction in the value of domestic currency by the government 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, but 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.

Hint:

Devaluation boosts exports by making them cheaper, which can increase national income.

Answer 1

The Correct Option is A

\text{Devaluation of currency leads to making exports cheaper and imports more expensive. This helps in increasing net exports, which in turn can lead to a rise in national income.}
\text{The assertion is correct, and the reason correctly explains how devaluation impacts national income.}