2016 · Q90
Which of the following will be the outcome if an economy is under the inflationary pressure?
- 1Domestic currency heads for depreciation.
- 2Exports become less competitive with imports getting costlier.
- 3Cost of borrowing decreases.
- 4Bondholders get benefitted.
Select the correct answer using the code given below.
General KnowledgeIndian Economy
- A1 and 2
- B2 and 3
- C1 and 3 only
- D1, 3 and 4
Explanation
Inflationary pressure erodes the currency's purchasing power, pushing it toward depreciation (1), and makes domestic goods dearer so exports lose competitiveness while imports cost more (2). It raises, not lowers, the cost of borrowing as interest rates climb (3 false), and it harms bondholders by eroding real returns (4 false). Hence 1 and 2.