ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A Firms may have to purchase more expensive, domestically-produced raw materials.
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B Firms may have to sell more of their output on the domestic market.
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C The change in demand for foreign currency on the foreign exchange market may lead to an appreciation in the exchange rate.
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D The change in supply of the domestic currency on the foreign exchange market may reduce the money supply in the domestic economy.
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Detailed explanation-1: -The Current Account Deficit could be reduced by boosting exports and curbing non-essential imports such as gold, mobiles, and electronics.
Detailed explanation-2: -A deficit in the balance of payments leads to a higher demand for foreign currency to the detriment of national currency which would depreciate in this situation. However, an exceeding account balance involves a high amount of foreign currency for which the national currency would be exchanged.
Detailed explanation-3: -A change in a country’s balance of payments can cause fluctuations in the exchange rate between its currency and foreign currencies. The reverse is also true when a fluctuation in relative currency strength can alter balance of payments.
Detailed explanation-4: -Devaluing the domestic currency. Reduction in the export subsidy. Adopting suitable policies which attract greater FDI and more funds from FIIs.