IBPS PO Mains English Sectional Mock Test 02

1. Read the following passage carefully and answer the questions given after it. Central bankers rarely enjoy raising interest rates, and the members of a monetary policy committee who vote for a hike usually do so with an eye on what happens if they do not. Inflation that is allowed to settle above target has a way of feeding on itself. Workers ask for higher wages to keep up with prices, firms pass those costs on, and households begin to treat rising prices as normal. Once expectations shift in this way, bringing inflation down requires far harsher medicine than a small, timely increase in rates. The difficulty is that the most visible sources of inflation are often beyond the reach of monetary policy. A poor monsoon pushes up the price of vegetables; a conflict in a distant region lifts the price of crude oil. Higher interest rates cannot make it rain or reopen a shipping lane. What they can do is limit the second-round effects: the gradual spread of a supply shock into the prices of goods and services that were not directly affected. A central bank that ignores those effects risks seeing a temporary spike turn into a permanent rise. Critics argue that tightening in the face of a supply shock punishes borrowers twice, first through higher prices and then through costlier loans, without addressing the root cause. The answer offered by most central banks is that the cost of a small hike today is lower than the cost of a large one later. That argument is persuasive only if the bank also signals clearly that it will stop once the threat passes. Credibility, in the end, rests as much on knowing when to stop as on the willingness to start.

   Q1.According to the passage, why does inflation that settles above target become harder to control?

   • A.Supply shocks always become permanent
   • B.Monetary policy committees are dissolved
   • C.Central banks lose the legal power to raise rates
   • D.Expectations shift, so wages and prices start rising in a self-reinforcing way
   • E.Households stop borrowing altogether

2. Q2.What, in the author's view, can higher interest rates actually achieve against a supply shock?

   • A.Remove the root cause of the shock
   • B.Limit the spread of the shock into other prices
   • C.Increase rainfall during a poor monsoon
   • D.Reopen blocked shipping routes
   • E.Reduce the global price of crude oil directly

3. Q3.Which of the following best describes the critics' objection mentioned in the passage?

   • A.Interest rates should be set by the government
   • B.Central banks should target growth instead of inflation
   • C.Rate hikes are always too small to matter
   • D.Borrowers suffer from both higher prices and costlier loans while the cause remains
   • E.Supply shocks never affect prices

Start the test to answer these. Correct answers and explanations are shown after you submit.