Official Answer Key & Detailed Solution
Ready to check the official UPSC Answer Key?
Click any option above to test yourself under exam conditions, or reveal the explanation directly.
Correct Answer: Option (D) — Following an expansionary monetary policy
Concept & Option Breakdown
Standard Reference VerifiedFollowing an expansionary monetary policy lowers domestic interest rates, leading to capital outflows seeking higher returns abroad. It also increases domestic money supply and aggregate demand, which can spur inflation and increase imports, worsening the currency depreciation.
Conversely, curbing non-essential imports reduces foreign exchange outflows, Masala Bonds shift currency risk to foreign investors, and easing ECB norms increases capital inflows—all of which support the value of the rupee.
Expansionary monetary policy increases money supply and lowers interest rates, inducing capital flight and further weakening the currency.
Practice Full-Length & Sectional Prelims Mocks on this Interface
50 simulated tests in the APT Prelims Test Series (₹1,493) or 1-on-1 Mentorship with Avinash Sir.