Based on the above passage, the following assumptions have been made : 1. Fiscal policies of governments are solely responsible for higher prices. 2. Higher prices do not affect the long-term government bonds. Which of the assumptions given above is/are valid?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2 ✓ UPSC's answer
Why the answer is (d)
• Assumption 1 is not valid: the passage says higher prices come from a mix of forces — governments spending freely, central-bank interest rates and rising debt-service costs — so fiscal policy is not "solely" responsible.
• Assumption 2 is not valid: the passage links rising prices, higher interest rates and more government borrowing; nothing in it suggests that long-term government bonds are unaffected by higher prices — if anything, rising rates and debt bear directly on them.
• Neither assumption follows from the passage, so the answer is option (d).
Why the other options are wrong
- (a) 1 only
- Assumption 1 is incorrect because the passage indicates that monetary policy and debt dynamics also contribute to inflation, not just fiscal policy.
- (b) 2 only
- Assumption 2 is incorrect because the passage states that higher interest rates and rising debt make interest rates critical to budget deficits, directly affecting government bonds.
- (c) Both 1 and 2
- Both assumptions are invalid as the passage refutes the idea that fiscal policy is the sole cause of inflation and confirms that debt dynamics affect government bonds.
Asked in the CSAT Paper II of the UPSC Civil Services Preliminary Examination 2024, held on 16 June 2024. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.