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.
Which of the following statements best reflect/reflects the most logical and rational inference/inferences that can be made from the passage? 1. Central 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 using the code given below:
Both 1 and 2
Inference 1: The passage explains that central banks' use of higher interest rates is intended to encourage fiscal discipline. However, without fiscal measures such as reducing government spending or increasing taxes, monetary policy may become less effective and could even contribute to inflationary pressures. This highlights the crucial role of fiscal backing in enabling central banks to effectively manage inflation.
Inference 2: The passage emphasizes that fiscal backing is essential for the continued effectiveness of monetary policy. This point is illustrated by the statements, “Without the fiscal backup, monetary policy eventually loses traction” and “The risk of monetary unmooring is greater when public debt rises.” Higher interest rates can lead to increased government borrowing due to rising debt-service costs, demonstrating that fiscal policies play a pivotal role in determining the impact of monetary policy.
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.
