Consider the following statements : 

Statement-I:
In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.

Statement-II:

Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.

Which one of the following is correct in respect of the above statements? 

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-1

(c) Statement-I is correct but Statement-II is incorrect

(d) Statement-I is incorrect but Statement-II is correct 

Explanation:

The correct answer is (a).

Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.

Statement-I states that in the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes. This is true. Many central banks, including the US Federal Reserve, the Bank of England, and the European Central Bank, have raised interest rates in an effort to combat rising inflation.

Statement-II states that Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means. This is also true. Monetary policy is the use of interest rates and other tools to control the amount of money in circulation. By raising interest rates, central banks can make it more expensive for businesses and consumers to borrow money, which can help to slow down the economy and reduce inflation.

Statement-II is the correct explanation for Statement-I because it explains why central banks have been raising interest rates. Central banks believe that by raising interest rates, they can slow down the economy and reduce inflation.

Inputs from Indian Economy Mindmap Notes and Current Affairs Notes

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