CLAT UG 2023 COMPLETE SOLUTION WITH DETAILED ANSWERS- QUESTIONS 106-110

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106. Which of the following is the author most likely to agree with?

(A) It is a major cause for concern if an economy’s currency is depreciating.

(B) Currency depreciation is not a reason for worry in itself but if macroeconomic

factors are not good there may be a cause for concern.

(C) The fact that the Indian rupee is witnessing a decline in value against major

currencies is very worrisome.

(D) A central bank must always do everything in its power to stem the slightest

depreciation of an economy’s currency.

Answer : Based on the provided passage, the author is most likely to agree with option (B): "Currency depreciation is not a reason for worry in itself, but if macroeconomic factors are not good, there may be a cause for concern."

The passage states that the depreciation of an economy's currency is not a concern in itself but should be viewed within a set of macroeconomic factors. The author highlights that the rate at which the depreciation is occurring and the underlying factors causing the change are of concern. They specifically mention factors such as disruptions in supply chains, rising commodity prices, inflationary trends, and outflows of portfolio investments, which are causing problems for the Indian economy.

Therefore, the author acknowledges that currency depreciation can be a cause for concern if it is accompanied by unfavorable macroeconomic factors.

107. Based on the author’s arguments which of the following if true would reduce the

decline in value of the rupee?

(A) Appointing a new Governor for the RBI who has a better sense of how to

control inflationary trends.

(B) A steep increase in commodity prices and the continued disruption of supply chains.

(C) A reduction in worldwide inflationary trends and the reduction of interest

rates in developed country markets.

(D) The RBI buying as many dollars as possible from the market.

Answer : Based on the author's arguments, option (C) would reduce the decline in value of the rupee.

The author explains that one of the underlying factors causing the depreciation of the rupee is the worldwide hardening of inflationary trends, which is a result of the disruption of supply chains due to the Russia-Ukraine war. This has led major central banks to raise interest rates, which in turn forces investors to seek the safe haven of the US dollar. As a result, there is a greater demand for dollars, leading to a decline in the value of the rupee.

Therefore, if there is a reduction in worldwide inflationary trends and a reduction of interest rates in developed country markets, it would ease the pressure on the rupee. This would reduce the demand for dollars and potentially stabilize or increase the value of the rupee.

108. Which of the following if true would most weaken the author’s arguments?

(A) The Indian economy has been affected by global inflationary trends and the

increase of interest rates in developed country markets.

(B) Since developed country markets have increased their interest rates global

investors have pulled their investments out of other economies and routed

them to such developed country markets.

(C) As the demand for US dollars increases it is likely the rupee-price of a dollar

would increase substantially.

(D) The Indian economy and currency are highly protected and have been insulated

from the effects of global inflationary trends and the increase of interest rates

in developed country markets.

Answer : The statement that would most weaken the author's arguments is (D) "The Indian economy and currency are highly protected and have been insulated from the effects of global inflationary trends and the increase of interest rates in developed country markets." This statement contradicts thetr author's claims about the impact of global inflationary trends and interest rate increases on the Indian economy and currency. If the Indian economy and currency were indeed highly protected and insulated from these effects, then the author's arguments about the depreciation of the Indian rupee and its challenges would be undermined.

109. Which of the followingI if trueI would most strengthen the author’s arguments for

why Indian exports may not be able to take advantage of a falling rupee?

(A) Economies across the world are witnessing a slowdown and in such economies demand for imports decreases substantially.

(B) Economies across the world are booming and there is an increasing demand

for Indian exports.

(C) A reduction in the volume of exports would be more than offset by the increased

value of dollars that Indian exporters would earn.

(D) Countries across the world have managed to find ways to insulate themselves from the effects of the Russia-Ukraine war and will need a lot of Indian imports to sustain their new growth models.

Answer : The author argues that Indian exports may not be able to take advantage of a falling rupee. To strengthen this argument, we need to find a statement that supports the idea that the current economic conditions are unfavorable for Indian exports.

Among the given options, option (A) would most strengthen the author's argument. If economies across the world are witnessing a slowdown, it implies that the overall demand for imports would decrease. This would make it more difficult for Indian exporters to find buyers for their products, even with a falling rupee. The decreased demand in the global market would outweigh any advantage gained from the depreciated currency.

110. Based on the author’s arguments which of the following must necessarily be true?

(A) The continuing depreciation of the Indian rupee at its current rate coupled with

worldwide inflationary trends would result in immense political instability

in India and consequently in all of South Asia.

(B) If nothing else is done the rise of interest rates in developed country markets

coupled with hardening of inflationary trends across the world will result in

a fall in the value of the rupee against the dollar.

(C) If inflationary trends continue to harden across the world and if interest

rates in developed country markets continue to riseI portfolio investors will

increase their investments in IndiaI and this will have a positive impact on

India’s foreign exchange reserves.

(D) If nothing else is done the rise of interest rates in developed country markets

coupled with hardening of inflationary trends across the world will result in

a rise in the value of the rupee against the dollar.

Answer : Based on the arguments presented in the passage, (B) If nothing else is done, the rise of interest rates in developed country markets coupled with hardening of inflationary trends across the world will result in a fall in the value of the rupee against the dollar is the statement that must necessarily be true.

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