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According to recent media reports : 'USA has accusedChina of currency devaluationto promoteits exports' . In the light of the given media report comment, how exports can be promoted through the currencydevaluation? Also analyse its effect on national income of China. |
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Answer» Solution :The concern of USA is VALID because DEVALUATION by China adverselyeffects exports of USA. Devaluation by Chinagives a competitive edge forChinese goods in the INTERNATIONAL market becauseChinese goods become cheaper. This increasesChinese exports but at the same time adverselyaffectsU.S exports as U.S. goods become relatively costlier in the internationalmarket. National income of China will rise. It is because devaluation by Chinamakes chinese exportscheaper in theinternational market, leading TOINCREASE in exports.At the same time it MAKES imports by China costlierleading todecrease in imports. Effect on both exports and imports of China together lead to increase in 'net exports' , acomponent income when estimated through the expenditure method. |
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