Inflation — Set 4

Correct Answer: B. Normal economic growth and expansion

The correct answer is 'Normal economic growth and expansion'. Creeping inflation is usually a result of a healthy, growing economy. It happens when the supply of goods cannot quite keep up with the steady increase in demand. It provides an incentive for producers to produce more, which helps the economy grow.

Correct Answer: A. Real income decreases

For people with fixed salaries or pensions, their nominal income (the amount of money they receive) stays the same, but its real value falls. As prices rise, the same amount of money buys fewer goods and services. This leads to a drop in their standard of living.

Correct Answer: D. (Nominal GDP / Real GDP) * 100

The correct answer is '(Nominal GDP / Real GDP) * 100'. The GDP deflator is the ratio of the value of goods and services an economy produces in a particular year at current prices to those at base year prices. It is a more comprehensive measure of inflation than CPI or WPI. This is because it includes all final goods and services produced domestically.

Correct Answer: A. Reducing the size of a product while maintaining its price

Shrinkflation is a hidden form of inflation where the quantity or size of a product is reduced but its retail price remains the same. Companies use this tactic to maintain profit margins without scaring off customers with a direct price hike. It is common in the FMCG (consumer goods) industry.

Correct Answer: A. Monetary Policy Committee (MPC)

The Monetary Policy Committee (MPC) of the RBI is responsible for fixing the benchmark interest rate (Repo Rate) to keep inflation within the target. It consists of six members: three from the RBI and three nominated by the government. The committee meets at least four times a year.

Correct Answer: B. Inverse relationship

Inflation and purchasing power have an inverse relationship. As the general level of prices rises, each unit of currency buys fewer goods and services. Thus, inflation erodes the value of money over time.

Correct Answer: B. National Statistical Office (NSO)

The National Statistical Office (NSO), which works under the Ministry of Statistics and Programme Implementation, releases CPI data. It releases separate indices for Rural, Urban, and Combined categories. This data is usually released on a monthly basis.

Correct Answer: A. Inflation between 3% to 10%

Walking inflation is a slightly higher level of price rise, typically between 3% and 10% per year. While not as dangerous as galloping inflation, it can start to hurt the economy if not controlled. It signals the government and central bank to take precautionary measures.

Correct Answer: A. Measure of price changes from the perspective of the seller

The Producer Price Index (PPI) measures the average change over time in the selling prices received by domestic producers for their output. It is different from CPI, which measures price changes from the purchaser's perspective. PPI is considered a leading indicator of inflation as price changes here eventually reach consumers.

Correct Answer: B. Monetary inflation

Monetary inflation is a sustained increase in the money supply of a country. According to the quantity theory of money, if the money supply grows faster than the rate of economic growth, it leads to inflation. This is often summarized by the saying 'money is a veil'.