The concept of 'Currency Substitution' or 'Dollarisation' refers to:
A. The use of a foreign currency in parallel with or instead of the domestic currency
B. The complete replacement of the domestic currency by a commodity standard
C. Only official dollarisation by law
D. Only the use of gold coins
Answer: Option A
Solution (By JKSSB Mock Tests)
Currency substitution occurs when residents hold and use a foreign currency (often the US dollar) for transactions or as a store of value alongside or instead of the domestic currency.
Explanation:
On the balanced-growth path of the Solow model, aggregate capital, output and effective labour grow at the exogenous rate of technological progress plus population growth, so that capital and output per effective worker are constant.
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