Q. ‘Taper Tantrum’ was recently seen in news. Which of the following statements correctly explains the term?

[A] It is the process in economy to remove inefficient firms by favoring best performers.

[B] It is a concept used by Big Techs to reduce the competition by buying smaller firms.

[C] It is the outcome of US Federal Reserveu2019s decision to reduce its quantum of a bond-buying programme that led to a sudden sell-off in global bonds and stocks.

[D] It is the term that is used to define the imposition of climate finance on developing countries by developed countries.

Answer: C

After the 2007-2009 global financial crisis and recession, the US Federal Reserve started a bond-buying programme (known as quantitative easing) to infuse liquidity. With these funds, the investors started investing in global bonds and stocks. 

In 2013, the US Federal Reserve decided to reduce (taper) its quantum of a bond-buying programme that led to a sudden sell-off in global bonds and stocks. 

As a result, many emerging market economies, that received large capital inflows, suffered currency depreciation and outflows of capital. This is called globally as a ‘taper tantrum‘. 

Source: BRICS: 2021 vs 2013: About Taper Tantrum and Economy of BRICS nations