US Economy Surges 4.9% in Q3, Exceeding Expectations

Answer: B

Statement 1 is incorrect. The news summary explicitly states that strong growth was primarily driven by 'resilient consumer spending, increased business investment, and robust government expenditure', not primarily by net exports. While net exports are a component of GDP, they were not highlighted as the primary driver here. Statement 2 is correct. Strong economic growth can lead to increased demand and potential inflation, prompting central banks (like the Federal Reserve) to adopt a 'hawkish' stance, which typically involves raising interest rates to cool down the economy and control inflation. Statement 3 is correct. A strong US economy boosts demand for goods and services, benefiting Indian exports and IT services. However, if US interest rates rise, it makes dollar-denominated assets more attractive, potentially leading to capital outflows from emerging markets like India, seeking higher returns.

Answer: B

A 'hawkish' stance in monetary policy refers to a central bank's inclination towards tightening monetary policy to combat inflation. This typically involves raising interest rates, reducing the money supply, or unwinding asset purchases (quantitative tightening). The primary goal is price stability, even if it means slowing down economic growth. Option A describes a 'dovish' stance. Option C describes a dual mandate where employment is prioritized, which is often associated with a more dovish approach when inflation is not a major concern. Option D describes exchange rate intervention, which is a different aspect of central bank operations, not directly defining a hawkish stance.

Answer: C

Statement A is correct. Rising interest rates in the US make dollar-denominated assets more attractive, increasing demand for the dollar and potentially strengthening it against other currencies, including the Indian Rupee. Statement B is correct. Higher returns in the US can prompt FPIs to reallocate capital from emerging markets like India to the US, leading to capital outflows from India. Statement C is NOT correct. Rising interest rates in the US would generally increase the cost of borrowing in US Dollars globally, including for Indian companies seeking External Commercial Borrowings (ECBs). ECBs become more expensive, not cheaper. Statement D is correct. If India has external debt denominated in US Dollars, and US interest rates rise (or the dollar strengthens), the cost of servicing that debt (interest payments) would increase, leading to a higher interest burden.