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Economics/Currency Exchange Rate


Is there any difference between "FALLING OF RUPEE" and "RISING OF DOLLAR" in INR-USD exchange rate perspective? If answer is "yes", then what is that difference?

Hi Shivangi,

Thank you for posing the question. This is a question of international economics as well as of monetary economics. You can look into your answers from two different perspectives.

First, when Indian rupee is pegged with U.S. dollar as a ind of international convertibility, there could be "falling of rupee" when the value of U.S. dollar goes up, and "rising of rupee" when the value of dollar goes down, in terms of international index. For example, U.S. dollar is now rising, and so Indian rupee is now falling, as much as Canadian dollar is falling. This is because internationally whenever India has to make transactions it has usually to do in U.S. dollars, and it has to buy U.S. dollars at higher rupees per dollar. This happens even if domestically Indians today buy the same goods and services at certain amount of Indian rupees as they used to do yesterday.

Secondly, when U.S. dollar value stays put, Indian rupees may still be rising or falling depending on the demand for exports and supply of imports which give rise to foreigners' demand for Indian rupees and Indians' demand for U.S. dollars, respectively. This mechanism boils down to the demand for and supply of Indian rupees. The same situation could also evolve if domestically the value of Indian rupee were to rise or fall. For example, there could be an amount of inflation in Indian economy which would raise the price level, leaving the value of Indian rupee reduced, since now less goods and services could be bought with the same amount of money. The government could mitigate or do away with the problem by increasing money supply proportionately, for peoples' income also increase simultaneously and proportionately. Domestically, there would then be no problem: since money and commodities increase simultaneously and proportionately, the Indians will be neither better nor worse off [technically you say, demand functions are homogeneous of degree zero in income and prices]. Yet, when you compare the new rupee with the existing U.S. dollar, you find Indian rupee has fallen.

You can give similar reasoning when you conjure up "deflation," though deflation is a rarer phenomenon now, and deflation is way far worse than inflation.

I hope this serves your purpose. If you have further specific question, feel free to as. I wish you best of success in you academic pursuit.  


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Eklimur Raza


It appears some students in this website are confused about elasticity of demand and the slope of the demand curve when they are trying to figure out why rectangular hyperbola comes up in case of unitary demand curve. First, they don't know that RH can be depicted in a positive quadrant of price,quantity plane. Secondly, they make the mistake that the slope of RH is constant at -1. Two points could help them: first, e=1 at each and every point of the RH, because the tangent at any point shows lower segment=upper segment (another geometric definition of e); yet slopes at different points,dQ/dP, are different; second, e is not slope but [(Slope)(P/Q)]in absolute terms. Caveat: only if we measure (log P) along the horizontal axis and (log Q) up the vertical axis, can we then say slope equals elasticity --in which case RH on P,Q plane is transformed into a straight-line demand curve [with slope= -tan 45 deg] on (log Q),(logP) plane, and e= -d(log Q)/d(log P). [By the way, logs are not used in college textbooks --although that is helpful in econometric estimation of elasticity viewed as an exponent of P, when demand equation is transformed into log-linear form.] I have not found the geometrical explanation I have given in any textbook followed in undergraduate and college classes in Canada (including the book followed in a university where I taught for a short time and in the book followed in George Brown College, Toronto, where I teach.


About 11 years' teaching economics and business studies, and also English, history and elementary French.Practical experience in a development bank, working with international donor agencies like the World Bank and the ADB. Experience in free-lance journalism, including Canada's "National Post."

I teach micro- and macroeconomics at George Brown College (continuing education), Toronto, ON, Canada.

Many articles and editorials, on different subjects, in English newspapers. Recently an applied Major Research Paper, based on a synthesis of the Solow growth model and the Lewis two-sector model, has be accepted by Ryerson University, Toronto. Professors Thomas Barbiero and Eric Cam, Ryerson University, accepted the paper.

Master degree in Interantional Economics and Finance and diploma with honours in Business Administration from Canada.

Awards and Honors
Received First Prize in an inter-university Literary Contest.

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