Read the following passages and answer the items that follow the passages. Your answers to these items should be based on the passages only. 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.
Based on the above passage, the following assumptions have been made: 1. Fiscal policies of governments are solely responsible for higher prices. 2. Higher prices do not affect the long-term government bonds. Which of the assumptions given above is/are valid?
Neither 1 nor 2
Assumption 1 is invalid: The passage explores the interaction between government spending, fiscal policies, monetary policies, and interest rates in influencing inflation. It does not imply that fiscal policies alone are the cause of rising prices. Furthermore, the passage highlights the role of monetary policy in affecting inflation, as noted in the statement, “Higher interest rates are announced by central banks…. Higher interest rates become inflationary.”
Assumption 2 is invalid: The passage makes no reference to the impact or connection between long-term government bonds and rising prices.
Important Questions from Miscellaneous Topics
- In communication the word 'Haptics' signifies :
- Which of the following statements best defines the scope of semiotics?
The compound interest on Rs. 75,000 for three years, at successive interest rates of 4%, 6% and 9% for each year respectively is:
The value of x in the following figures is :
When a child reaches adolescence, there is apt to be a conflict between the parents and the child, since
the latter considers himself to be by now quite capable of managing his own affairs, while the former
are filled with parental solicitude, which is often a disguise for love of power. Parents consider, usually,
that the various moral problems which arise in adolescence are peculiarly their province. The options
they express, however, are so dogmatic that the young seldom confide in them, and usually go their
own way in secret.
