Consider the following statements :
Statement-1: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-1
(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-1
(c) Statement-1 is correct Statement-II is incorrect
(d) Statement-1 is incorrect Statement-II is correct
Answer: A
The answer is (a).
Statement-I is correct. Many Central Banks worldwide had carried out interest rate hikes in the post-pandemic recent past. This is because they were concerned about the rising consumer prices.
Statement-II is also correct. Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means. This is because they can raise interest rates, which makes it more expensive for businesses to borrow money and invest. This, in turn, can lead to a slowdown in economic growth, which can help to bring down inflation.
Statement-II is the correct explanation for Statement-I because it explains why Central Banks were raising interest rates. They were raising interest rates in an attempt to counteract the rising consumer prices. It is important to note that there are other factors that can affect inflation, such as supply chain disruptions and the war in Ukraine. However, interest rates are one of the main tools that Central Banks have to try to control inflation
