Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?
- A.Curbing imports of non-essential goods and promoting exports
- B.Encouraging Indian borrowers to issue rupee denominated Masala Bonds
- C.Easing conditions relating to external commercial borrowing
- D.Following an expansionary monetary policy
Correct answer
Explanation
The correct answer is D, Following an expansionary monetary policy. Expansionary policy cuts interest rates and adds money to the system, which pushes capital out and weakens the rupee further, so it is not a step to defend the currency. The rupee falls when demand for dollars outruns their supply, through a wide current account deficit or the exit of foreign investors. To support it, the government and the RBI try to cut dollar demand and draw in dollar inflows, and the RBI may also raise rates or sell dollars from its reserves. Option A is a likely measure because curbing non-essential imports, such as gold, reduces dollar demand and promoting exports earns dollars. Option B is a likely measure because rupee-denominated Masala Bonds bring in foreign money while the currency risk stays with the foreign investor. Option C is a likely measure because easier external commercial borrowing lets companies raise foreign loans, bringing dollars into India. Exam tip: To stop the rupee's fall — fewer imports, more exports, easier foreign borrowing, tighter (not looser) monetary policy.
Practice Questions
View allWhich one of the following central features is not associated with Capitalist Economy?
- A.There is generalised commodity production - it has market value.
- B.Productive wealth is held predominantly in private hands.
- C.Economic life is organised according to market principles.
- D.Economic organisation is based on planning, a supposedly rational process of resource allocation.
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Allocation of resources through central planning is the mark of a socialist or command economy, not a capitalist one. In a capitalist economy, the means of production such as land, factories and capital are owned mainly by private individuals and firms.
Read the full explanation →Consider the following statements:
I. The Second Five-Year Plan sought to promote development which would establish socialistic pattern of society in India.
II. Between 1966 and 1969, three Annual Plans were formulated.
III. The Ninth Five-Year Plan could not take off at its stipulated time in the 60th year of India's Independence.
Which of the statements given above are correct?
- A.I and II only
- B.I and III only
- C.II and III only
- D.I, II and III
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Statements I and II are true, but the Ninth Plan began in 1997, the fiftieth year of Independence, not the sixtieth.
Read the full explanation →According to the National Multi-dimensional Poverty Index (MPI) constructed by the NITI Aayog, a household is considered deprived if 1. a single member of the household is identified as under-nourished 2. the body mass index of a woman member, between 15 years and 49 years of age, is below 18.5 kg/m2 Select the correct answer using the code given below.
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
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Under the nutrition indicator, a household is deprived if any one eligible member is undernourished, and a woman of 15 to 49 with a BMI below 18.5 counts as undernourished.
Read the full explanation →Which one of the following canons of taxation was not advocated by Adam Smith?
- A.Canon of equality
- B.Canon of certainty
- C.Canon of convenience
- D.Canon of fiscal adequacy
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Adam Smith laid down four canons of taxation, and fiscal adequacy was not one of them; it was added by later economists.
Read the full explanation →Which one of the following is a good statistic to evaluate where an economy stands in the financial cycle ?
- A.Tax/GDP Ratio
- B.Fiscal Deficit/GDP Ratio
- C.Household Consumption/GDP Ratio
- D.Credit/GDP Ratio
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The financial cycle is the rise and fall of credit and asset prices, and the ratio of credit to GDP shows how far borrowing has run ahead of the economy.
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