If in an effort to control depreciation of rupee the RBI puts more dollars in the supply, it may lead to greater inflation, caused by
A)Increase in money supply in the economy
B)Reduced availability of goods due to increased exports.
C)Reduced availability of goods due to reduced imports
D)All of the above.

Question

Quizplus · Accepted Answer

When the RBI puts more dollars into the supply to control the depreciation of the rupee, it increases the money supply in the economy (A), which can lead to inflation. Additionally, this action can make exports cheaper and more competitive internationally, potentially increasing exports and reducing the availability of goods domestically (B). It can also make imports more expensive, leading to reduced imports and further reducing the availability of goods in the domestic market (C). All these factors combined can contribute to greater inflation.

If in an Effort to Control Depreciation of Rupee the RBI