Which of the following statements best reflects reflect the most logical and rational infe...........

English Comprehension Reading Comprehension (C)

As inflation rises, even governments previously committed to budget discipline are spending freely to help households. Higher interest rates announced by central banks are supposed to help produce modest fiscal austerity, because to maintain stable debts while paying more to borrow, governments must cut spending or raise taxes. Without the fiscal backup, monetary policy eventually loses traction. Higher interest rates become inflationary, not disinflationary, because they simply lead governments to borrow more to pay rising debt-service costs. The risk of monetary unmooring is greater when public debt rises, because interest rates become more important to budget deficits.

Which of the following statements best reflects/ reflect the most logical and rational inference/inferences that can be made from the passage?

1. Cenfral banks cannot bring down inflation without budgetary backing.

2. The effects of monetary policy depend on the fiscal policies pursued by the government.

Select the correct answer usiríg the code given below,

This questions was previously asked in

UPSC CSAT, Previous year (2024)

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1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

- Statement 1: Central banks cannot bring down inflation without budgetary backing.

- The passage suggests that central banks and governments must work together. Without fiscal measures like spending cuts or tax hikes, high interest rates alone may not curb inflation.

- This statement accurately captures the idea that budgetary backing is crucial for effective inflation control.

- Statement 2: The effects of monetary policy depend on the fiscal policies pursued by the government.

- The passage indicates that when governments do not adjust their fiscal policies, the impact of higher interest rates diminishes. Instead of reducing inflation, these rates can lead to increased borrowing, worsening the situation.

- This reflects the idea that fiscal policy plays a significant role in the success of monetary policy.

Correct Option:

- Option 3: Both 1 and 2 - Both statements are logical inferences based on the passage.

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