1-Purchase of second hand machinery from abroad is included in national income or not
2-Decrease in the price of DOMESTIC currency in terms of FOREIGN currency under flexible exchange rate regime is what called plz experts I am not able to understand plz state with example.
3-Decrease in the price of FOREIGN currency in terms of DOMESTIC currency under flexible exchange rate regime is what called plz experts I am not able to understand plz state with example.
Dear student,
1. Purchase of second hand machinery from abroad will be included in National Income as a part of Gross fixed capital formation. However, it must be noted that such purchases from within the country will not be included in National Income.
2. Decrease in the price of domestic currency in terms of foreign currency implies that domestic currency has become cheaper in relation to foreign currency. For example, suppose the exchange rate rises from ($1 = Rs 45) to ($1 = Rs 50). This implies that earlier $1 could purchase only Rs 45 worth of goods while now it can purchase Rs 50 worth of goods. That is, with the same amount of money in dollars more of goods can be produced in terms of rupees.
3. Decrease in the price of foreign currency in terms of domestic currency implies that foreign currency has become cheaper in relation to domestic currency. For example, suppose the exchange rate falls from ($1 = Rs 45) to ($1 = Rs 40). This implies that earlier Rs 45 was required to purchase $1 worth of goods while now it can purchased with Rs 40 only. That is, the same amount of goods in dollars canbe bought with lesser rupees.
1. Purchase of second hand machinery from abroad will be included in National Income as a part of Gross fixed capital formation. However, it must be noted that such purchases from within the country will not be included in National Income.
2. Decrease in the price of domestic currency in terms of foreign currency implies that domestic currency has become cheaper in relation to foreign currency. For example, suppose the exchange rate rises from ($1 = Rs 45) to ($1 = Rs 50). This implies that earlier $1 could purchase only Rs 45 worth of goods while now it can purchase Rs 50 worth of goods. That is, with the same amount of money in dollars more of goods can be produced in terms of rupees.
3. Decrease in the price of foreign currency in terms of domestic currency implies that foreign currency has become cheaper in relation to domestic currency. For example, suppose the exchange rate falls from ($1 = Rs 45) to ($1 = Rs 40). This implies that earlier Rs 45 was required to purchase $1 worth of goods while now it can purchased with Rs 40 only. That is, the same amount of goods in dollars canbe bought with lesser rupees.