Q. Which of the following will be the outcome if an economy is under the inflationary pressure?1.Domestic currency heads for depreciation.2.Exports become less competitive with imports getting costlier.3.Cost of borrowing decreases.4.Bondholders get benefitted. Select the correct answer using the code given below.
A) 2 and 3
B) 1 and 2
C) 1, 3 and 4
D) 1 and 3 only
✔ Correct Answer: 1 and 3 only
Exam Insight
Under inflationary pressure, domestic currency depreciates, exports become less competitive, and imports become costlier, leading to a trade imbalance.