Option 1: Both the statements are individually true and statement II is the correct explanation of statement I.

Explanation: This option suggests that both statements I and II are true, and that statement II provides the correct explanation for statement I. However, this is not accurate. Statement I says that deficit financing does not lead to inflation if adopted in small doses, while statement II states that deficit financing is a commonly used tool for financing budgetary deficits. Even though both statements are true individually, statement II does not explain or support statement I. Therefore, this option is incorrect.

Option 2: Both the statements are individually true, but statement II is not the correct explanation of statement I.

Explanation: This is the correct answer. It acknowledges that both statements I and II are true, but recognizes that statement II does not serve as an explanation for statement I. It is important to note that deficit financing can indeed lead to inflation, regardless of the size of the dose.

Option 3: Statement I is true, but statement II is false.

Explanation: This option claims that only statement I is true, while statement II is false. However, statement II is actually true, as deficit financing is commonly used to finance budgetary deficits. Therefore, this option is incorrect.

Option 4