Read the following passage and answer the item that follows. Your answer to this item should be based on the…
Read the following passage and answer the item that follows. Your answer to this item should be based on the passage only.
Passage:
In India, the objective of macroeconomics policy is to enhance the economic welfare of the people, and any one wing of such macro policy, monetary or fiscal, cannot independently work without active support of another.
Which one of the following statements best reflects the corollary to the passage given above?
The central bank cannot work independently of the Government.
Government should regulate financial markets and institutions closely.
Market economy is not compatible with the socialist policies of the Government.
Financial sector reforms are required for enhancing the economic welfare of the people.
Solution
The passage concludes that monetary and fiscal policy cannot work independently of each other. Since the central bank handles monetary policy and the government handles fiscal policy, it follows as a natural corollary that the central bank cannot work independently of the Government. Option (a) is correct; (b), (c) and (d) are beyond the scope.