4. Based on the above passage, the following assumptions have been made : 1. Fiscal policies of governments are solely responsible for higher prices. 2. Higher prices do not affect the long-term government bonds. Which of the assumptions given above is/are valid?

1. A. 1 only
2. B. 2 only
3. C. Both 1 and 2
4. D. Neither 1 nor 2

Answer: D

Explanation

Assumption 1 is invalid. The passage discusses how both fiscal policies (government spending) and monetary policies (central bank interest rates) influence inflation, stating that “Higher interest rates become inflationary.” This implies that monetary policy also plays a role, so fiscal policies are not *solely* responsible for higher prices. Assumption 2 is invalid. The passage does not mention long-term government bonds or their relationship with higher prices at all. Therefore, no information is provided to support or refute this assumption. Both assumptions cannot be considered valid based on the provided text. This question requires careful adherence to the information presented in the passage and avoiding the introduction of external economic knowledge.