MCQ
upsc-p1-economy-inflation MCQ - Practice Questions with Answers
Solve 12 upsc-p1-economy-inflation questions for RAS/RPSC preparation.
Practice questions
Q1Consider the following statements about inflation: 1. Disinflation means that the general price level is falling continuously. 2. Unexpected inflation can reduce the real burden of fixed nominal debt for borrowers. 3. Fixed-income savers may lose purchasing power when nominal returns do not keep pace with inflation. Which of the statements given above are correct?
Statements 2 and 3 are correct. Disinflation is a fall in the inflation rate while it remains positive, so prices can still be rising more slowly; a fall in the general price level is deflation. Unexpected inflation lowers the real burden of fixed nominal debt and erodes purchasing power when fixed incomes or returns lag behind prices.
Q2With reference to the flexible inflation-targeting framework under the Reserve Bank of India Act, 1934, consider the following statements: 1. Section 45ZA provides for determination of the CPI inflation target by the Central Government in consultation with RBI. 2. Section 45ZB deals with RBI's failure report when the target is missed. 3. Section 45ZL requires reasons, remedial actions and a time period for returning inflation to target when RBI fails to meet it. 4. The Finance Act, 2016 inserted the flexible inflation-targeting framework into the RBI Act. Select the correct answer using the code below.
Statements 1, 3 and 4 are correct. Section 45ZA concerns the notified CPI target, and Section 45ZL concerns accountability after failure. Statement 2 is incorrect because Section 45ZB provides for the Monetary Policy Committee, rather than the failure report.
Q3Match List I with List II and select the correct answer using the code below: List I (Institution or body) A. National Statistics Office B. Office of Economic Adviser, DPIIT C. Monetary Policy Committee D. Central Government in consultation with RBI List II (Function) 1. Determines the policy repo rate required to achieve the inflation target 2. Determines and notifies the CPI inflation target once every five years 3. Compiles CPI for rural, urban and combined India 4. Compiles and releases WPI
The National Statistics Office compiles CPI; the Office of Economic Adviser, DPIIT compiles WPI; the Monetary Policy Committee determines the policy repo rate; and the Central Government determines the CPI target once every five years in consultation with RBI. The matching is A-3, B-4, C-1, D-2.
Q4Consider the following statements regarding inflation management in India: 1. Demand-pull inflation generally responds better to monetary tightening than a supply-driven food shock does. 2. A repo-rate increase can directly expand the physical supply of food and crude oil. 3. Buffer-stock release, imports and improved logistics can be relevant responses to supply-driven inflation. Which of the statements given above are correct?
Statements 1 and 3 are correct. Monetary tightening moderates credit, aggregate demand and expectations, so it is better suited to demand-pull inflation. It cannot directly produce food or crude oil; supply shocks may require stocks, trade measures, storage and logistics responses. Therefore statement 2 is incorrect.
Q5Match List I with List II: List I (Indicator or concept) (a) Consumer Price Index (b) Wholesale Price Index (c) Consumer Food Price Index (d) Real interest rate List II (Best description) 1. Nominal interest rate minus inflation 2. Food-price movement faced by consumers 3. Household-facing prices of goods and services 4. Commodity-heavy prices at wholesale or early transaction stages Select the correct answer using the code given below.
CPI measures household-facing prices of goods and services; WPI tracks commodity-heavy wholesale or early transaction prices; CFPI isolates consumer food-price movement; and the real interest rate is the nominal interest rate minus inflation. The correct matching is therefore (a)-3, (b)-4, (c)-2 and (d)-1.
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6Consider the following statements: Statement I: A rise in wholesale commodity prices need not produce an equal and immediate rise in consumer-price inflation. Statement II: Taxes, subsidies, retail margins and distribution costs can cause WPI and CPI to diverge. Which one of the following is correct in respect of the above statements?
7Consider the following statements about the Combined Consumer Price Index (CPI): 1. It is a simple arithmetic average of rural and urban inflation. 2. It aggregates rural and urban baskets using weights linked to expenditure and population-related design. Which of the statements given above is/are correct?
8Arrange the following stages in the usual transmission of a repo-rate increase: A. Credit growth and aggregate demand moderate B. RBI raises the repo rate C. Inflationary pressure and expectations tend to soften with a lag D. Bank funding and lending rates tend to harden Select the correct answer using the code below.
9Consider the following statements about price indices in India: 1. CPI covers goods and services bought by households. 2. WPI has three broad groups: primary articles, fuel and power, and manufactured products. 3. WPI directly measures the final retail prices paid by households. 4. Core inflation usually excludes volatile food and fuel components. Select the correct answer using the code below.
10Consider the following statements about the Wholesale Price Index (WPI): 1. It captures the household services basket in the same manner as CPI. 2. It is the nominal anchor for RBI's flexible inflation-targeting framework. Which of the statements given above is/are correct?
11With reference to the distributional effects of inflation, consider the following statements: 1. Unexpected inflation can reduce the real burden of fixed nominal debt. 2. Fixed-income savers necessarily gain when inflation rises. 3. If inflation rises while deposit rates lag, households may shift towards real or riskier assets. Select the correct answer using the code below.
12Consider the following statements: Statement I: Core inflation can help analysts identify persistent price pressure. Statement II: Core inflation commonly excludes volatile food and fuel components, while headline inflation includes them. Which one of the following is correct in respect of the above statements?