If the government of India implemented a policy that reduced national saving,its real exchange rate would
A)depreciate and Indian net exports would rise.
B)depreciate and Indian net exports would fall.
C)appreciate and Indian net exports would rise.
D)appreciate and Indian net exports would fall.

Question

Quizplus · Accepted Answer

A reduction in national savings implies that there will be less savings available for investment purposes. This means that the domestic interest rates will increase, making it more attractive for foreign investors to invest in the Indian economy. As a result, there will be an inflow of foreign capital, which will increase the demand for the Indian currency, and appreciate the real exchange rate. A stronger currency will make Indian exports more expensive, leading to a decrease in net exports. Therefore, the correct answer is D - appreciate, and Indian net exports would fall.

If the Government of India Implemented a Policy That Reduced