Consider the following statements:Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β Β [2023]
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.
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In the recent post-pandemic period, central banks worldwide have raised interest rates to combat inflation, which surged due to heightened fiscal spending during COVID-19 and supply chain issues stemming from the Russia-Ukraine conflict. Therefore, Statement 1 is accurate. The central banks' decisioRead more
In the recent post-pandemic period, central banks worldwide have raised interest rates to combat inflation, which surged due to heightened fiscal spending during COVID-19 and supply chain issues stemming from the Russia-Ukraine conflict. Therefore, Statement 1 is accurate.
The central banks’ decision to increase interest rates aims to raise borrowing costs, leading to a reduction in money supply and, consequently, a decrease in inflation rates. Thus, Statement 2 is also valid.
The rise in interest rates in advanced economies, particularly in the U.S., has negatively impacted the Indian economy, resulting in increased net Foreign Portfolio Investment (FPI) outflows, significant depreciation of the Rupee, declines in foreign exchange reserves, and rising yield rates. This negative impact on the Indian economy is commonly referred to as “Taper Tantrums.” Consequently, this question was posed within this context.
Therefore, the correct answer is Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.
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