Which of the following statements best reflects/reflect the most logical and rational inference/inferences that can be made from the passage?
- 1.Central banks cannot bring down inflation without budgetary backing.
- 2.The effects of monetary policy depend on the fiscal policies pursued by the government.
Select the correct answer using the code given below.
Answer & explanation
Answer: (c) Both 1 and 2
The passage says that ‘without the fiscal backup, monetary policy eventually loses traction’, and that higher interest rates can even become inflationary if governments simply borrow more. So central banks need budgetary support, and what monetary policy achieves depends on fiscal choices.
- ✓ 1. This restates ‘Without the fiscal backup, monetary policy eventually loses traction’: higher interest rates alone do not bring inflation down if governments keep borrowing.
- ✓ 2. Whether higher rates are disinflationary or inflationary depends on whether governments cut spending and raise taxes or just borrow more to pay interest. That is, the effect of monetary policy depends on fiscal policy.
Remember · When a passage states a condition (‘without X, Y fails’), both ‘Y needs X’ and ‘Y depends on X’ are valid inferences.
Question and answer: UPSC's official GS Paper II (2024, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·