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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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