UPSC CSE Prelims
Question 80
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?
View correct answer and explanation
Correct answer: A
Correct Option: A (Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I)
Explanation: Many central banks increased policy interest rates after the pandemic to damp inflation by raising borrowing costs and slowing demand.
Statement / Pair / Item-wise Analysis:
I. Correct/True - Central banks widely raised policy rates amid the 2021–23 inflation surge.
II. Correct/True - Interest-rate changes affect credit, spending and inflation expectations, giving monetary policy a tool against rising prices.
Option-wise Analysis:
A. Correct-both statements hold, and II explains I.
B. Incorrect-Statement II directly explains the situation in Statement I.
C. Incorrect-Statement II is true, not false: Interest-rate changes affect credit, spending and inflation expectations, giving monetary policy a tool against rising prices.
D. Incorrect-Statement I is true, not false: Central banks widely raised policy rates amid the 2021–23 inflation surge.