[Solved] The existence of a Parallel Economy or Black Money -

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Q.	The existence of a Parallel Economy or Black Money -
A.	makes the economy more competitive
B.	makes the monetary policies less effective
C.	ensures a better distribution of income and wealth
D.	ensures increasing productive investment
Answer» B. makes the monetary policies less effective
Explanation: In India, Black money refers to funds earned on the black market, on which income and other taxes has not been paid. Black money leads to black liquidity which is immune to any monetary-fiscal policy. It can move around in the economy creating excess demand in several vulnerable sectors of the economy. Of particular relevance in this context is a policy dominated by sector-wise credit rationing in order to maintain inter-sectoral balances. The cost of credit is one one part of such a policy. So, in nutshell, the existence of parallel economy erodes the effectiveness of monetary policies.

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