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    Question

    Consider the following economic indicators and their

    expected impact on an economy: A rise in the fiscal deficit   An increase in the repo rate by the central bank   Depreciation of the domestic currency   Which of the following correctly describes their likely effects ?  
    A 1 - Expansionary, 2 - Contractionary, 3 - Inflationary Correct Answer Incorrect Answer
    B 1 - Contractionary, 2 - Expansionary, 3 - Deflationary Correct Answer Incorrect Answer
    C 1 - Deflationary, 2 - Expansionary, 3 - Growth Stimulating Correct Answer Incorrect Answer
    D 1 - Inflationary, 2 - Neutral, 3 - Contractionary Correct Answer Incorrect Answer
    E 1 - Neutral, 2 - Inflationary, 3 - Deflationary Correct Answer Incorrect Answer

    Solution

    Explanation:  

    • Fiscal Deficit Increase (Expansionary): Higher government spending stimulates demand.  
    • Repo Rate Increase (Contractionary): Higher rates discourage borrowing and spending.  
    • Currency Depreciation (Inflationary): Increases import costs, raising inflation.  

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