Macroeconomics and Policy

Stagflation is an economic condition characterized by slow economic growth (stagnation) and relatively high unemployment, accompanied by rising prices (inflation).

Free Market Policy is not helpful in controlling money supply. A free market is an economic system that allows supply and demand to regulate prices, wages, etc, rather than government.^[1] Free markets contrast with controlled markets in which prices, supply or demand are directly or indirectly controlled by government. 

The Federal Reserve is the central bank of the United States. Changes to the federal funds rate directly impact the banking system within the USA.

When banks recall loans and raise interest rates, it signals a credit crunch. This forces businesses to reduce inventory and cancel orders (1), and leads to reduced consumer spending due to job losses (3). Statement 2 is a consequence, but the question asks for the message to the business community, which is best captured by the economic cycle described in 1 and 3.

Reducing interest rates lowers the cost of borrowing for corporations, reduces the cost of capital, and encourages investment, which stimulates industrial growth. All three statements are correct.

As overcapitalsiation arises when actual profits are not sufficient to provide a fair return on share capital over a period fo time. So when profits are low in comparison to capital invested by investors, the company pays lower dividends on shares than previous years to its investors due to less profits.

The 2008 global financial crisis was largely triggered by the sub-prime mortgage crisis in the United States, which severely impacted financial institutions worldwide.

Dear money refers to a situation where the cost of borrowing money is high due to high interest rates, often implemented by central banks to curb inflation.

Inflation is generally caused by an increase in the money supply (too much money chasing too few goods) or a decrease in the supply of goods (fall in production), leading to higher prices.

The sentence mentions about the uncertainity of monsoon. 'Vagaries' is the best option to imply the same as it means odd, whimsical, or freakish.

Chiefly means mainly or primarily, which fits the context of the government's primary focus.

General decline in national income (GDP). Which includes wages, salaries, profits, interest and rental income.

This is the amount charged, expressed as a percentage of principal by a lender to a borrower for the use of assets.

It is an entity (person or institution) that extends credit by giving another entity permission to borrow money if it is paid back at a later date.

In India, monetary policy of the Reserve Bank of India is aimed at managing the quantity of money in order to meet the requirements of different sectors of the economy and to increase the pace of economic growth.