Question:
I. Inflation rate in India has come down.
II. Reserve Bank of India has increased interest rate.
I. Inflation rate in India has come down.
II. Reserve Bank of India has increased interest rate.
II. Reserve Bank of India has increased interest rate.
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In cause-effect questions, monetary policy changes like interest rate hikes are usually the cause, and economic indicators like inflation respond as the effect.
Updated On: Aug 11, 2025
- I is the main cause and II is the main effect
- I is effect but II is not the main cause
- II is the main cause and I is the main effect
- II is an effect but I is not the main cause
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The Correct Option is C
Solution and Explanation
An increase in interest rates by the Reserve Bank of India makes borrowing more expensive and encourages saving, which reduces the money supply in circulation.
With less money chasing goods and services, inflationary pressures reduce, leading to a lower inflation rate.
Thus, II (RBI increasing interest rate) is the main cause, and I (inflation rate coming down) is the main effect.
With less money chasing goods and services, inflationary pressures reduce, leading to a lower inflation rate.
Thus, II (RBI increasing interest rate) is the main cause, and I (inflation rate coming down) is the main effect.
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