Inflation and Growth MCQ — 89 Practice Questions with Answers

Q1. Consider the following statements regarding India's flexible inflation targeting framework: 1. The inflation target is defined in terms of the all India Consumer Price Index. 2. The inflation target is defined in terms of the Wholesale Price Index because WPI is primarily used as a GDP deflator. 3. The notified inflation target was 4 per cent CPI inflation with an upper tolerance limit of 6 per cent and a lower tolerance limit of 2 per cent. 4. The inflation target is set by the RBI alone every year without consultation with the Government of India. Which of the statements given above are correct?

Q2. Consider the following statements about monetary policy and inflation in India: 1. The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. 2. India's flexible inflation targeting framework uses Consumer Price Index inflation as the inflation target. 3. Under this framework, monetary policy ignores price stability and focuses only on maximizing real GDP growth. Which of the statements given above are correct?

Q3. Consider the following statements about inflation, demand and productive capacity: 1. Demand-pull inflation reflects pressure when demand exceeds the economy's production capacity. 2. Expansionary policies can temporarily boost overall demand and economic growth. 3. Policymakers never face a balance between supporting demand and avoiding overstimulation. 4. When aggregate demand is below potential output, firms generally put upward pressure on prices. Which of the statements given above are correct?

Q4. Consider the following statements regarding India in the IMF April 2026 World Economic Outlook: 1. India is expected to maintain 6.5% GDP growth in FY28 alongside FY27 and remain the fastest-growing major economy. 2. India's headline inflation is projected to rise to 4.7% in FY27 from 2.1% in FY26, broadly within the Reserve Bank of India's tolerance band. Which of the statements given above is/are correct?

Q5. Consider the following statements regarding price indices used for inflation analysis in India: 1. CPI measures changes over time in the general level of prices of goods and services that households acquire for consumption. 2. CPI is used only for wage indexation and not as a macroeconomic indicator of inflation. 3. WPI is used as an important measure of inflation in India. 4. WPI price collection is done on the OEA portal of WPI. Which of the statements given above are correct?