Macroeconomics and Policy

It is deflation. At the time of deflation, purchasing power of people is reduced. Hence, at that time the supply of money in the hands of public must be increased like increase in old age pension, increase in unemployment compensation etc. Thus, people will demand more as money supply increases. This will boost the economy.

It is concerned with earning profit by government by issuing currency. Seigniorage is the profit earned by the government by issuing currency. It is the profit earned on the difference between face value of currency and its production cost. For instance, if the cost of production of a ten rupee coin is 50 paisa and its face value is Rs. 10, then a profit of Rs. 9.50 is earned on it.

It does not help in containing inflation. The non-developmental expenses such as on luxury of ministers, frequent foreign visits of ministers etc, do not produce anything, but increase the money supply without any increase in the productivity of goods and services. Hence, the prices will rise, as people have more purchasing power.

It does not help in price stability. When there is increase in non-developmental expenditure like increase in expenses on administration, payment of old age pension, expenses on ministers' security etc, it increases the supply of money. But these expenses do not help in increasing production; as such supply is less in comparison to demand and the prices move upward.

People tend to borrow more as their lifestyle and needs are changing. 

Keeping the budgetary deficit under control is a direct monetary policy tool that reduces government borrowing from the market, leaving more funds available for private sector and reducing demand-pull inflation. The other options are long-term structural measures.

Running Inflation - When the prices rise rapidly like the running of a horse at a rate of speed 10 to 20% per annum. The rate of the increase of price level gets further accelerated under running inflation. The price level under this type of inflation rises approximately by 10% every year. If government fails to curb running inflation in time, it may easily develop into galloping inflation. Creeping Inflation - Circumstance where the inflation of a nation increases gradually, but continually, over time. Although the increase is relatively small in the short-term as it continues over time, the effect will become greater and greater. It acts as an incentive for the industry and other sectors of the economy.  Structural Inflation - Inflation built into the economic system due to its government's monetary policy. In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high. It raises a dilemma for economic policy since actions designed to lower inflation or reduce unemployment may actually worsen economic growth.

Currency prices in international markets (exchange rates) are primarily determined by demand for the country's goods and services (exports) and government stability (which affects investor confidence and economic policy). The World Bank does not decide currency prices - it's a development institution, not a forex market regulator. Economic potential is a factor but is reflected in demand and stability rather than being a separate determinant.

During recession, growth is negative.

It is the right answer. In economics, inflation is a persistent increase in the general price level of goods and services in an economy over a period of time.

Biflation means a state of the economy where the process of inflation and deflation occurs simultaneously.

Countries dependent on primary product exports are economically vulnerable because their income fluctuates with global commodity prices. When prices drop or demand falls, these countries face severe economic instability. They lack diversified economies to buffer such shocks, making them prone to financial crises.

Deficit financing increases the money supply in the economy without corresponding production, leading to inflation. When the government spends more than its revenue by borrowing or printing money, it increases aggregate demand and pushes up prices across the economy.

This question asks for the FALSE statement. Options A, B, and C correctly describe monetary policy functions. Option D is false because monetary policy is formulated and implemented by the Reserve Bank of India (RBI), not the Finance Ministry - the Ministry handles fiscal policy.

A liquidity trap occurs when nominal interest rates are so low that monetary policy becomes ineffective because people prefer holding cash rather than bonds, meaning interest rates cannot fall any further.