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
Correct Answer
B
Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
C
Statement-I is correct but Statement-II is incorrect
D
Statement-I is incorrect but Statement-II is correct
Explanation
Statement I is correct as central banks globally (such as the US Fed and RBI) hiked interest rates post-pandemic to curb soaring inflation, while Statement II is correct because it describes the fundamental economic assumption that contractionary monetary policy can control price rises by reducing liquidity and demand. Option (a) is right because Statement II provides the direct logical rationale for the actions described in Statement I, making option (b) incorrect as it fails to recognize this clear cause-effect relationship. The core concept tested is the application of monetary policy tools to maintain price stability.
Monetary PolicyInflation TargetingCentral Banksinterest rate hikesconsumer pricesmonetary policy