When GDP increases more in the United States than it does in India, it can have several effects on U.S. net exports, the value of the U.S. dollar, and the value of the Indian rupee. Let's break it down:
U.S. Net Exports:
When GDP increases in the United States, it often leads to an increase in domestic demand for goods and services. This can result in higher imports as Americans consume more foreign products.
Therefore, in the short run, U.S. net exports are likely to decrease. This is because the increase in domestic demand may outstrip the increase in exports, causing a trade deficit.
Value of the U.S. Dollar:
A higher GDP in the United States can lead to expectations of stronger economic growth, which may attract foreign investment and capital inflows.
This increased demand for U.S. assets can lead to an appreciation of the U.S. dollar in the short run. In other words, the value of the U.S. dollar is likely to appreciate.
Value of the Indian Rupee:
Conversely, when GDP growth is comparatively lower in India, it may result in less attractive investment opportunities in India compared to the United States.
As a result, there may be a decreased demand for Indian assets, including the Indian rupee. In the short run, this can lead to a depreciation of the Indian rupee.
So, the short-run impact of this change in GDP would be:
U.S. Net Exports: Option B - Decrease
Value of the U.S. Dollar: Option A - Appreciate
Value of the Indian Rupee: Option C - Depreciate
Therefore, the correct answer is: B Decrease / Appreciate / Depreciate.
