Question

Read the following statements regarding 'Shock Therapy' and choose the correct option: Statement I: The 'Shock Therapy' was a model of transition from capitalism to socialism.
Statement II: It was influenced by the World Bank and IMF.

• A. Both are correct.
• B. Statement I is correct, II is wrong.
• C. Statement I is wrong, II is correct.
• D. Both are wrong.

Hint:

To remember 'Shock Therapy', think of the "Shock" as the sudden introduction of a free-market (capitalism) to a society that previously had a state-controlled economy (socialism). Since Statement I reverses this direction, it is false.

Answer 1

The Correct Option is C

Concept: 'Shock Therapy' refers to the painful process of transition from an authoritarian socialist system to a democratic capitalist system. This transition was encouraged and influenced by international financial institutions to integrate former communist states into the global economy.

Step 1: Evaluating Statement I
Statement I claims that 'Shock Therapy' was a transition from capitalism to socialism. Historically, this is incorrect; it was actually a model of transition from socialism to capitalism following the collapse of the Soviet Union.

Step 2: Evaluating Statement II .
Statement II states that the process was influenced by the World Bank and the International Monetary Fund (IMF). This is correct, as these institutions provided the economic framework and loans conditional upon these rapid market reforms.