Inflation — Set 1
Economics · मुद्रास्फीति · Questions 1–10 of 50
What is the primary indicator used by the Reserve Bank of India to measure inflation for monetary policy purposes?
Correct Answer: C. Consumer Price Index (CPI)
The Reserve Bank of India shifted to CPI as the primary measure of inflation in 2014. CPI reflects the change in the price level of a basket of consumer goods and services purchased by households. It is considered more representative of the impact of inflation on the general public.
Which type of inflation occurs when the total demand for goods and services exceeds the total supply?
Correct Answer: C. Demand-Pull Inflation
Demand-Pull inflation happens when the economy's demand grows faster than its productive capacity. This is often described as 'too much money chasing too few goods'. It usually occurs in a rapidly growing economy with high employment levels.
What is the term for a situation where the rate of inflation is high, economic growth rate slows down, and unemployment remains steadily high?
Correct Answer: C. Stagflation
Stagflation is a portmanteau of stagnation and inflation. It represents a difficult economic situation where rising prices are coupled with stagnant growth. This condition challenges traditional monetary policy because tools to lower inflation usually increase unemployment.
The 'Base Year' currently used for calculating the Consumer Price Index (CPI) in India is?
Correct Answer: A. 2012
The current base year for CPI (Combined) in India is 2012. A base year is used as a reference point to compare the price changes over time. The Ministry of Statistics and Programme Implementation periodically updates this base to reflect changing consumption patterns.
Who publishes the Wholesale Price Index (WPI) data in India?
Correct Answer: C. Office of Economic Adviser
The Office of the Economic Adviser, under the Ministry of Commerce and Industry, releases WPI data. WPI measures the changes in the prices of goods sold and traded in bulk by wholesale businesses. Unlike CPI, it does not include the service sector.
What is 'Core Inflation'?
Correct Answer: D. Inflation excluding food and fuel items
Core inflation measures the change in prices of goods and services but excludes those from the food and energy sectors. This is done because food and fuel prices are highly volatile and subject to seasonal shocks. It provides a better picture of the long-term trend in the price level.
Which of the following describes 'Hyperinflation'?
Correct Answer: C. Extremely rapid and out-of-control inflation
Hyperinflation is a situation where prices increase at an incredibly high rate, often exceeding 50% per month. It usually occurs during periods of war or extreme economic mismanagement. In such cases, the local currency loses its value almost completely.
Inflation redistributes wealth in an economy. Which group generally benefits from unexpected inflation?
Correct Answer: D. Debtors (Borrowers)
Debtors benefit from inflation because they repay their loans with money that has less purchasing power than when they borrowed it. Conversely, lenders lose out as the real value of the money they receive back decreases. This shift in wealth is a common social effect of rising prices.
Which curve shows the inverse relationship between the rate of unemployment and the rate of inflation?
Correct Answer: C. Phillips Curve
The Phillips Curve suggests that there is a trade-off between inflation and unemployment in the short run. Lower unemployment is typically associated with higher inflation as demand for labor pushes up wages. Economists use this curve to analyze the impact of monetary and fiscal policies.
What is the term for a decrease in the general price level of goods and services?
Correct Answer: C. Deflation
Deflation is the opposite of inflation and occurs when the inflation rate becomes negative. It increases the real value of money but can lead to a downward spiral of lower production and wages. Persistent deflation is generally viewed as a sign of a weak economy.