Current Affairs · Macroeconomics & Fiscal Policy
The January 2025 issue of the RBI Bulletin featured several analytical articles evaluating macroeconomic dynamics. One of these articles, 'Fiscal-Inflation Nexus: Is There a Feedback Loop?', authored by Harshita Keshan, Garima Wahi, and Krishna Mohan Kushwaha, investigates the post-pandemic interplay between fiscal deficits and inflation. Which of the following statements correctly describes the relationship between inflation, public debt, and fiscal policy as identified in the analysis of the fiscal-inflation nexus?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The feedback loop dictates that fiscal consolidation directly exacerbates inflationary pressures, making temporary debt burden suppression the only viable long-term strategy.
- 2High public debt acts as a primary deflationary force post-pandemic, prompting a temporary increase in fiscal deficits to sustain structural debt burdens.
- 3Elevated inflation temporarily reduces debt burdens but does not resolve long-term fiscal challenges, while high public debt contributes to inflationary pressures, necessitating fiscal consolidation.✓
- 4Elevated inflation permanently resolves long-term fiscal challenges by continuously suppressing debt burdens, negating the need for fiscal consolidation.
Correct answer
Elevated inflation temporarily reduces debt burdens but does not resolve long-term fiscal challenges, while high public debt contributes to inflationary pressures, necessitating fiscal consolidation.
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