Official Answer Key & Detailed Solution
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Correct Answer: Option (B) — 1 and 3 only
Concept & Option Breakdown
Standard Reference Verified- 1 and 3 are correct: IT service export earnings and inward remittances bring foreign exchange into India, bolstering foreign exchange reserves and providing a cushion against currency depreciation/crises.
- 2 is incorrect: Increasing government expenditure can expand the fiscal and twin deficits, raise inflation, and potentially undermine macroeconomic stability, thereby increasing (rather than reducing) currency risk.
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