Question

In this era of global capital flows, so much money is now flowing through the world that no single country can fight inflation effectively by tightening its monetary policy.
If the above is true, which of the following could be most logically concluded?

• A. Changes in the cash reserve ratio by the Reserve Bank of India will control the rate of inflation in India.
• B. Countries' finance ministers have sufficient control over their respective economies.
• C. Countries' finance ministers have insufficient control over their respective economies.
• D. Inflation does not matter as long as incomes increase.

Hint:

A single-tool failure (monetary policy failing to beat inflation) is itself evidence of limited economic control; look for the option that states this directly.

Answer 1

The Correct Option is C

The statement says that global capital flows are now so large that tightening monetary policy alone cannot control inflation in any single country. We need the option that follows logically from just this statement, without adding new information.

1. Option A: This says RBI's cash reserve ratio changes will control inflation in India. That is the opposite of what the statement says (monetary policy alone cannot do the job), so it contradicts the premise rather than following from it.
2. Option B: This says finance ministers have enough control over their economies. If monetary policy cannot even control inflation on its own, that points to less control, not sufficient control, so this also goes against the statement.
3. Option C: If a country cannot fight inflation, which is a core part of managing an economy, using its main policy tool (monetary policy), then its finance ministry does not have full command over the economy. This follows directly from the given statement.
4. Option D: The passage never says inflation stops mattering when incomes rise; that is an unrelated claim not supported by anything in the statement.

Only option C stays within what the statement actually implies: limited control over the economy because monetary policy alone is not enough against inflation driven by global capital flows.

Let's summarize:

• The premise says monetary policy alone cannot fight inflation now.
• That means finance ministers cannot fully control their economies, matching option C.
• Options A and B assume the opposite, and option D brings in an unrelated idea.

So the answer is option C.