Which of the following is true regarding the two statements: …

Business Questions
Short Answer
Step by Step Solution
Business Questions

Which of the following is true regarding the two statements: Statement I: In India, the central government determines the inflation target, in consultation with the RBI, based on the consumer price index once every five years. Statement II: Currently, the monetary policy framework in India is operated by the central government. – Both statements I and II are correct, and Statement II is the correct explanation for Statement I. – Both statements I and II are correct, but Statement II is not the correct explanation for Statement I. – Statement I is correct but Statement II is incorrect. – Statement I is incorrect but Statement II is correct.

Short Answer

The inflation target in India is set jointly by the central government and the Reserve Bank of India (RBI) every five years, focusing on economic stability based on the Consumer Price Index (CPI). While Statement I correctly emphasizes their collaboration, Statement II is incorrect as the operation of monetary policy is solely managed by the RBI, ensuring independent and effective governance.

Step-by-Step Solution

Step 1: Understanding Inflation Target Determination

The central government of India determines the inflation target in cooperation with the Reserve Bank of India (RBI). This process occurs once every five years and is based on the Consumer Price Index (CPI). The main aim is to ensure economic stability and foster growth within the economy.

Step 2: Evaluating Statement I

Statement I is accurate as it highlights the role of both the central government and the RBI in setting the inflation target. They work together to analyze the current economic conditions and make informed decisions regarding the CPI. This collaboration is vital for aligning monetary policy with the overall economic objectives of the country.

Step 3: Analyzing Statement II

Statement II, however, is incorrect because the operation of the monetary policy framework in India is solely the responsibility of the RBI, not the central government. The RBI utilizes various tools to regulate money supply and manage inflation effectively, independent of government intervention. This separation ensures more effective monetary governance.

Related Concepts

Central Government

The governing body that formulates and implements policies for a country, including economic measures like inflation targeting

Reserve Bank Of India (Rbi)

The central banking institution of india responsible for regulating the country’s monetary policy and maintaining financial stability

Consumer Price Index (Cpi)

A measure that examines the weighted average of prices of a basket of consumer goods and services, used to assess inflation and economic performance.

Table Of Contents
  1. Which of the following is true regarding the two statements: Statement I: In India, the central government determines the inflation target, in consultation with the RBI, based on the consumer price index once every five years. Statement II: Currently, the monetary policy framework in India is operated by the central government. – Both statements I and II are correct, and Statement II is the correct explanation for Statement I. – Both statements I and II are correct, but Statement II is not the correct explanation for Statement I. – Statement I is correct but Statement II is incorrect. – Statement I is incorrect but Statement II is correct.

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