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

Question

Quizplus · Accepted Answer

If American firms are becoming more productive compared to Indian firms, it is likely that American firms can produce goods at a lower cost and sell them at a lower price. This will make American products more attractive to consumers than Indian products, which may lead to a decrease in the quantity demanded of Indian products relative to American products. This could result in a decrease in the value of the rupee relative to the dollar, but there is no guarantee of this happening. The prices of Indian products could also decrease, but this is not necessarily the most likely scenario. Finally, an increase in the quantity demanded of Indian products relative to American products is unlikely if American firms are more productive.

If the Average Productivity of American Firms Is Rising More