If the average productivity of Indian firms is rising more quickly than the average productivity of Canadian firms, which of the following would you expect to see? (India's currency is the rupee.)

Question

Quizplus · Accepted Answer

If the productivity of Indian firms is rising more quickly than that of Canadian firms, it means that Indian firms are increasing their output per unit of input at a faster rate than the Canadian firms. This implies that Indian products are becoming relatively cheaper than Canadian products. As a result, the quantity demanded of Indian products is likely to increase relative to Canadian products, leading to an increase in exports from India. This increase in demand for Indian products could push up their prices, but it is not a necessary consequence. The value of the rupee relative to the Canadian dollar could also be affected, but it would depend on various other factors besides the productivity differential, such as interest rates, inflation, and exchange rate policies of the two countries.

If the Average Productivity of Indian Firms Is Rising More