Question
Which of the following may have an inflationary impact on the economy?
Select the correct answer using the code given below:
- Forex swap
- Increase in the inflow of foreign capital
- General elections
Select the correct answer using the code given below:
Answer: Option D
Answer: (d)
In the case of a forex swap, RBI may give rupees to banks and can take dollars, which leads to an increase in rupee liquidity in the economy, resulting in inflation. Of course, forex swaps can also be used to take out the excess liquidity in the economy (RBI giving dollars to banks and taking rupees).
An increase in foreign capital inflow leads to an increase in money supply leading to inflation. General elections lead to higher spending levels by the government increasing inflation.
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Answer: (d)
In the case of a forex swap, RBI may give rupees to banks and can take dollars, which leads to an increase in rupee liquidity in the economy, resulting in inflation. Of course, forex swaps can also be used to take out the excess liquidity in the economy (RBI giving dollars to banks and taking rupees).
An increase in foreign capital inflow leads to an increase in money supply leading to inflation. General elections lead to higher spending levels by the government increasing inflation.
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