Subscribe to ForumIAS

#TickleYourGreyCells - GS Economics Concepts

If interest #rates in the USA or European Union were to fall, that is likely to induce #RBI to buy dollars.

True or false? Answer in comments with logic...

#ImpossibleTrinity





DM,GaneshGaitondeand27 otherslike this
18.1k views

60 comments

Great to see the "Gaurav" of ForumIAS back after nearly 10 years ! How have you been Gaurav!

*goosebumps*

ssver2,thejokerand8 otherslike this
7.8k views

True.

Reduction in the US interest rates leads to flight of capital to more attractive destinations like India. Inflow of dollar would lead to appreciation of rupee. To arrest this supply of dollars in the market, RBI buys dollars since ours is a managed-floating type economy.

ssver2,Microand15 otherslike this
7.6k views

@gaurav1agrawal Thank you for Coming back (Superman Returns AGAIN 😁) . Your charisma and popularity is still unmatched. You were the only one who taught us how being an IAS was deeply meaningful as it gave you the ability to deliver JUSTICE. That talk on Forum community meet never fails to inspire me. 


Now that you've spent a greater time in the service, I hope we all will get to learn a lot more from you. 

Joeyisthebest,thejokerand8 otherslike this
7.4k views

Here is the solution to yesterday's #tickleyourgreycells - 2 ...@AzadHindFauz  got it spot on!


AzadHindFauz,Vin01and6 otherslike this
7.5k views
@AzadHindFauz brilliant answer


AzadHindFauz,
7k views

#tickleyourgreycells- 3

If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. True or false? Answer in comments with logic..



7k views

#tickleyourgreycells- 3

If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. True or false? Answer in comments with logic..




True.

Depreciation of currency for a country may lead to imported inflation

So, RBI will have to sell dollars in market to arrest the depreciation of rupee. So as to strike a balance between the supply of rupee and dollar in the market and stabilise the currency. (via selling forex reserves or boosting NRI deposits)


Neyawn,Joeyisthebestand7 otherslike this
7.1k views
@ingenuity_max excellent answer ingenuity! Though your answer was complete by the first sentence of the second para. There was no need for the rest. Well done!


ingenuity_max,
6.9k views
@gaurav1agrawal but sir ; what is the extent to which a country with limited forex  can sell dollar in the market ; to keep its dom currency stable . And what is the possible threat from the speculators in this case


gaurav1agrawal,
6.4k views

True.

Reduction in the US interest rates leads to flight of capital to more attractive destinations like India. Inflow of dollar would lead to appreciation of rupee. To arrest this supply of dollars in the market, RBI buys dollars since ours is a managed-floating type economy.

Thanks a ton, Azad! You rescued us.

Gaurav has more responses on LinkedIn than here, ironically. Or maybe not so ironically!

AzadHindFauz,BurtMacklin_FBIand3 otherslike this
6.9k views
@Pandit96 I am sure when you say a country with limited forex, you are not talking about India. India has fifth highest reserves globally and they are more than sufficient to cover any crisis in the foreseeable future. 

But academically, yes, if forex reserves run out, you can’t support the currency any more. That is where you get a balance of payments crisis. Of course this will be covered in a later #tickleyourgreycells 


AzadHindFauz,sstarrrand2 otherslike this
7.2k views
@gaurav1agrawal Definitely sir,
From theoretical perspective only,
Like when we discuss fixed vs flexible in mundell Flemming model


ryzenauster,
6.3k views

#tickleyourgreycells- 3

If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. True or false? Answer in comments with logic..



True bcoz normal demand supply.

ryzenauster,
6.2k views
1. Rapidly depreciation rupee -->2. helps exports but hurts imports -->3. as imports >exports --
->4. overall eco. hurts -->5. rbi buys dollars to arrest Rs. slide and maintain stability.
ryzenauster,
6k views
@Deviant13 good attempt deviant.. just that points 3 and 4 are not clean... 


6.4k views

Solution to#tickleyourgreycells  #3

The question was: If the rupee is rapidly depreciating, RBI is likely to buy or sell dollars in the market.


DM,ryzenauster
6.9k views

#tickleyourgreycells - 4

Inflation indexation of wages (meaning if #inflation goes up, wages go up and if inflation goes down, wages go down too at a predefined formula) will lead to demand side inflation or supply side inflation? Answer in comments with logic.



ryzenauster,dotttt27
6.8k views

#tickleyourgreycells - 4

Inflation indexation of wages (meaning if #inflation goes up, wages go up and if inflation goes down, wages go down too at a predefined formula) will lead to demand side inflation or supply side inflation? Answer in comments with logic.



Ans - Supply side inflation

Inflation indexed wages nullify the impact of inflation on wages and thus effectively keep the wages "same". Therefore keeping the demand in check, whereas simultaneouly they may result in increase of cost, leading to "supply side inflation"

AzadHindFauz,Rashmirathiand6 otherslike this
6.4k views
logic for #tickleyourgreycells 4:
1. if inflation increases wages will increase
2. more money in hand, so aggregate demand will increase while aggregate
    supply remains the same
3. this is demand-pull inflation/demand side infln.

Ans: demand side infln.
ryzenauster,
5.9k views


#tickleyourgreycells4:-

No demand side inflation:-

Suppose a basket of goods which used to cost ₹100,now costs ₹105.And the wages of a person also increases from ₹100 to ₹105.So his net purchasing capacity is same.Hence no increase in demand.

Can lead to supply side inflation:-

As wages are inceeasing,cost of production increases.

Rashmirathi,sstarrrand2 otherslike this
6.3k views
Write your comment…