{"id":85660,"date":"2025-06-01T03:24:09","date_gmt":"2025-06-01T03:24:09","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=85660"},"modified":"2025-06-01T03:24:09","modified_gmt":"2025-06-01T03:24:09","slug":"which-of-the-following-will-be-the-outcome-if-an-economy-is-under-the","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-will-be-the-outcome-if-an-economy-is-under-the\/","title":{"rendered":"Which of the following will be the outcome if an economy is under the"},"content":{"rendered":"<p>Which of the following will be the outcome if an economy is under the inflationary pressure?<\/p>\n<ul>\n<li>1. Domestic currency heads for depreciation.<\/li>\n<li>2. Exports become less competitive with imports getting costlier.<\/li>\n<li>3. Cost of borrowing decreases.<\/li>\n<li>4. Bondholders get benefitted.<\/li>\n<\/ul>\n<p>Select the correct answer using the code given below.<\/p>\n<p>[amp_mcq option1=&#8221;1 and 2&#8243; option2=&#8221;2 and 3&#8243; option3=&#8221;1 and 3 only&#8221; option4=&#8221;1, 3 and 4&#8243; correct=&#8221;option1&#8243;]<\/p>\n<div class=\"psc-box-pyq-exam-year-detail\">\n<div class=\"pyq-exam\">\n<div class=\"psc-heading\">This question was previously asked in<\/div>\n<div class=\"psc-title line-ellipsis\">UPSC CDS-2 &#8211; 2016<\/div>\n<\/div>\n<div class=\"pyq-exam-psc-buttons\"><a href=\"\/pyq\/pyq-upsc-cds-2-2016.pdf\" target=\"_blank\" class=\"psc-pdf-button\" rel=\"noopener\">Download PDF<\/a><a href=\"\/pyq-upsc-cds-2-2016\" target=\"_blank\" class=\"psc-attempt-button\" rel=\"noopener\">Attempt Online<\/a><\/div>\n<\/div>\n<section id=\"pyq-correct-answer\">The outcome if an economy is under inflationary pressure will be that domestic currency heads for depreciation and exports become less competitive.<\/section>\n<section id=\"pyq-key-points\">Inflation reduces the purchasing power of a currency. If a country experiences higher inflation relative to its trading partners, its goods become more expensive for foreigners, reducing the competitiveness of exports. This higher domestic price level and reduced export competitiveness often lead to a decrease in demand for the domestic currency on the international market, potentially causing it to depreciate.<\/section>\n<section id=\"pyq-additional-information\">Statement 1 is correct because high inflation typically leads to currency depreciation. Statement 2 is correct because inflation makes domestically produced goods more expensive, hurting export competitiveness. Statement 3 is incorrect; inflation generally leads to higher nominal interest rates, increasing the cost of borrowing, though real interest rates might vary. Statement 4 is incorrect; bondholders, who receive fixed nominal payments, are typically harmed by unexpected inflation as the real value of their payments decreases.<\/section>\n","protected":false},"excerpt":{"rendered":"<p>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. [amp_mcq option1=&#8221;1 and 2&#8243; option2=&#8221;2 and &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Which of the following will be the outcome if an economy is under the\" class=\"read-more button\" href=\"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-will-be-the-outcome-if-an-economy-is-under-the\/#more-85660\">Detailed Solution<span class=\"screen-reader-text\">Which of the following will be the outcome if an economy is under the<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1088],"tags":[1098,1120,1190],"class_list":["post-85660","post","type-post","status-publish","format-standard","hentry","category-upsc-cds-2","tag-1098","tag-economic-development","tag-money-banking","no-featured-image-padding"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Which of the following will be the outcome if an economy is under the<\/title>\n<meta name=\"description\" content=\"The outcome if an economy is under inflationary pressure will be that domestic currency heads for depreciation and exports become less competitive. Inflation reduces the purchasing power of a currency. If a country experiences higher inflation relative to its trading partners, its goods become more expensive for foreigners, reducing the competitiveness of exports. 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If a country experiences higher inflation relative to its trading partners, its goods become more expensive for foreigners, reducing the competitiveness of exports. 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Inflation reduces the purchasing power of a currency. If a country experiences higher inflation relative to its trading partners, its goods become more expensive for foreigners, reducing the competitiveness of exports. This higher domestic price level and reduced export competitiveness often lead to a decrease in demand for the domestic currency on the international market, potentially causing it to depreciate.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-will-be-the-outcome-if-an-economy-is-under-the\/","og_locale":"en_US","og_type":"article","og_title":"Which of the following will be the outcome if an economy is under the","og_description":"The outcome if an economy is under inflationary pressure will be that domestic currency heads for depreciation and exports become less competitive. Inflation reduces the purchasing power of a currency. If a country experiences higher inflation relative to its trading partners, its goods become more expensive for foreigners, reducing the competitiveness of exports. This higher domestic price level and reduced export competitiveness often lead to a decrease in demand for the domestic currency on the international market, potentially causing it to depreciate.","og_url":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-will-be-the-outcome-if-an-economy-is-under-the\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2025-06-01T03:24:09+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-will-be-the-outcome-if-an-economy-is-under-the\/","url":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-will-be-the-outcome-if-an-economy-is-under-the\/","name":"Which of the following will be the outcome if an economy is under the","isPartOf":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#website"},"datePublished":"2025-06-01T03:24:09+00:00","dateModified":"2025-06-01T03:24:09+00:00","author":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209"},"description":"The outcome if an economy is under inflationary pressure will be that domestic currency heads for depreciation and exports become less competitive. 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