Which of the following is a characteristic of the 'Sudden Stop' literature?
A. Capital flows never reverse
B. Abrupt reversals of capital inflows can cause large real depreciations, output collapses and financial crises
C. Only trade shocks matter
D. Capital-flow reversals are always gradual and benign
Answer: Option B
Solution (By JKSSB Mock Tests)
Sudden-stop models analyse the macroeconomic and financial consequences of large and abrupt reversals in capital inflows, which often trigger currency crises, credit contractions and sharp recessions.
Explanation:
The First Five Year Plan (1951-56) gave priority to agriculture, irrigation and power to address food shortages and build a foundation for future growth.
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