Inflation — Set 2
Economics · मुद्रास्फीति · Questions 11–20 of 50
Which category has the highest weightage in the Wholesale Price Index (WPI) in India?
Correct Answer: B. Manufactured Products
Manufactured products account for approximately 64.2% of the total weight in the WPI basket. This is followed by Primary Articles and then Fuel and Power. Note that WPI does not include services, which is a major difference from the CPI.
What is 'Bottleneck Inflation'?
Correct Answer: C. Inflation caused by supply-side constraints
Bottleneck inflation occurs when supply falls drastically while demand remains at the same level. This often happens due to structural issues like poor infrastructure, transport delays, or strikes. It is also referred to as structural inflation in some contexts.
The situation when prices rise due to an increase in the cost of production (like wages or raw materials) is called?
Correct Answer: B. Cost-Push Inflation
Cost-Push inflation is driven by a decrease in the aggregate supply of goods and services due to rising production costs. For example, a global rise in crude oil prices increases transportation costs for all goods. Producers then pass these costs on to consumers in the form of higher prices.
Under the current Monetary Policy Framework, what is the target inflation range for the RBI?
Correct Answer: B. 4% with a margin of +/- 2%
The Government of India has set an inflation target of 4% for the RBI, with an upper tolerance limit of 6% and a lower limit of 2%. This is known as the '4+/-2' mandate. This flexible inflation targeting helps maintain price stability while supporting economic growth.
Which index is also known as the 'Cost of Living Index'?
Correct Answer: B. Consumer Price Index
The Consumer Price Index (CPI) is often called the Cost of Living Index because it tracks the expenses of an average household. It measures changes in the price level of market basket of consumer goods. It is used to adjust wages and pensions to keep up with inflation.
What is 'Disinflation'?
Correct Answer: C. A decrease in the rate of inflation
Disinflation is a slowdown in the rate at which prices are rising. For instance, if the inflation rate falls from 5% to 3%, the economy is experiencing disinflation. Unlike deflation, prices are still increasing, just at a slower pace.
Which type of inflation is characterized by very low and predictable price increases, usually around 2% to 3% annually?
Correct Answer: C. Creeping Inflation
Creeping inflation refers to mild inflation where prices rise slowly but steadily. It is generally considered beneficial for an economy as it encourages production and investment. Most developed nations aim for this level of inflation.
If the inflation rate is high, the value of the national currency generally?
Correct Answer: A. Decreases
The correct answer is 'Decreases'. Inflation leads to a decline in the purchasing power of money, meaning one unit of currency buys fewer goods. This results in an internal decrease in the value of money. In the international market, high inflation often leads to the depreciation of the currency's exchange rate.
What is 'Reflation'?
Correct Answer: A. Intentional increase in prices to stimulate the economy
Reflation is a fiscal or monetary policy designed to expand output and curb the effects of deflation. It usually involves increasing the money supply or reducing taxes. The goal is to bring the economy back up to its long-term trend after a recession.
Which of the following is a 'Fiscal Measure' to control inflation?
Correct Answer: A. Reducing public expenditure
Fiscal measures are actions taken by the government regarding taxation and spending. Reducing public expenditure helps decrease the total demand in the economy, thereby cooling down inflation. Increasing taxes is another fiscal tool to reduce the disposable income of citizens.