Question 1

What is the primary indicator used by the Reserve Bank of India to measure inflation for monetary policy purposes?

Accepted Answer

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.

Question 2

Which type of inflation occurs when the total demand for goods and services exceeds the total supply?

Accepted Answer

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.

Question 3

What is the term for a situation where the rate of inflation is high, economic growth rate slows down, and unemployment remains steadily high?

Accepted Answer

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.

Question 4

The 'Base Year' currently used for calculating the Consumer Price Index (CPI) in India is?

Accepted Answer

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.

Question 5

Who publishes the Wholesale Price Index (WPI) data in India?

Accepted Answer

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.

Inflation — Set 1