Inflation Multiple Choice Questions :- MCQs
1. Which one of the following government steps has proved relatively effective in controlling the double-digit rate of inflation in the Indian economy as experienced in the 1970s?
a) Enhanced rate of production of all consumer goods
b) Streamlined public distribution system
c) Pursuing an export-oriented strategy
d) Containing budgetary deficits and unproductive expenditure
Answer :- d
2. The purchasing power of money or value of money varies
a) Directly with the interest rate
b) Directly with the price level
c) Directly with the volume of employment
d) Inversely with the price level
Answer :- d
3. Inflation helps in redistribution of income through
a) Proportional change in prices of everything, including prices of assets and debt instruments
b) Disproportional change in prices of everything including prices of assets and debt instruments
c) Rising prices of everything, including prices of assets and debt instruments
d) Falling prices of everything, including prices of assets and debt instruments
Answer :- b
4. Which one of the following items has maximum weight in the wholesale price index in India?
a) Primary article
b) Fuel and power
c) Manufactured product
d) Food items
Answer :- c
5. The consumer price index is designed to measure the degree to which
a) Incomes are distributed among the poor and rich over time
b) The cost of purchasing a basket of consumer goods has changed with time
c) Consumption patterns have changed with time because of higher prices
d) Consumer prices have risen relative to the wage level in the economy
Answer :- b
6. To know whether the rich are getting richer and the poor are getting poorer, it is necessary to compare
a) The consumer price index over different periods of time for different regions
b) The distribution of income between two sets of income recipients to different periods of time
c) The distribution of income between two different sets of income recipients at the same point of time
d) The availability of food grain among two sets of people, one rich and the other poor, over different periods of time
Answer :- b
7. The headline inflation in India is measured in respect of movement of
a) Consumer price index
b) Wholesale price index
c) Cost of living index for agricultural labour
d) Money supply
Answer :- a
8. Share of food items in total consumption expenditure has reduced in the last two decades because
a) People have been purchasing less food.
b) People have been preferring non-food items in their food basket.
c) The availability of food grains has reduced in the country
d) Income level of people have increased.
Answer :- d
9. A low rate of inflation is considered necessary for economic growth. Why?
a) It acts as an incentive to boost supply in the economy
b) It indicates that the currency is in continuous demand by the people
c) It affects only the rich and not the poor
d) It does not affect the purchasing power of wages
Answer :- a
10. Which one of the following statements refers to “disinflation”?
a) A simultaneous existence of high rate of inflation and high unemployment in a country
b) A process of reversing inflation but without creating unemployment and reducing output
c) A policy of moderating rising prices and also to pull the system out of economic slowdown
d) A situation of recession caused by severe deficiency of effective demand
Answer :- b
Inflation Objective Questions
11. Consider the following statements:
- All inferior goods are Giffen goods
- All increase in income results in lower demand for an inferior good
Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer :- d
12. When there is a fall in the prices in an economy, it may lead to which of the following?
- Increase in the demand for consumer goods
- Rise in the interest rates
- Increase in exports
Select the correct answer using the codes given below:
a) 1 only
b) 1 and 2 only
c) 1 and 3 only
d) 1, 2 and 3
Answer :- c
13. Which of the following factors contribute towards demand-pull inflation?
- Increase in government expenditure
- Rising population and household consumption
- Increase in income level
- Fluctuations in output and supply
- Increase in administered prices
Select the correct answer using the codes given below:
a) 1, 2 and 3 only
b) 1 and 2 only
c) 2, 3 and 4 only
d) 1, 2, 3, 4 and 5
Answer :- a
14. Consider the following statements:
- Reduction in the reverse repo rate can be used to combat inflation
- Purchasing power of money reduces on account of inflation
- Inflation favours the debtors
Select the correct answer using the codes given below:
a) 1 only
b) 1 and 2 only
c) 2 and 3 only
d) 1, 2, and 3
Answer :- c
15. Consider the following statements regarding inflation targeting:
- Presently, the RBI targets inflation on the basis of consumer prices.
- The ultimate target for inflation as decided by the Monetary Policy Committee is 6 +/- 2%
- The RBI can manage the supply (not demand) of the commodities by regulating more supply
- India witnesses high inflation in fruits and vegetables because of poor supply chain management
Which of the statements given above are incorrect?
a) 1 and 2
b) 2 and 3
c) 3 and 4
d) 1 and 4
Answer :- b
16. Economists are faced with the problem of selecting items for the consumer price index. The index number is expected to measure the general changes in the price level of a basket of commodities. Which of the quality/qualities listed below should be taken care of while selecting the commodities?
- The items should be representative of the tastes, habits, customs, and necessities of the people to whom they relate.
- The items should be adequate in number and importance
- The items should be moderately priced.
Select the correct answer using the codes given below:
a) 1, 2 and 3
b) 1 and 2 only
c) 1 only
d) 2 and 3 only
Answer :- b
17. Which of the following are the effects of inflation in the economy?
- With the same level of wages, the purchasing power of people gets reduced.
- The high inflation rate reduces the real value of savings of people
- Inflation leads to increase in the real rate of interest
Select the correct answer using the code given below:
a) 1 and 3 only
b) 2 and 3 only
c) 1, 2 and 3
d) 1 and 2 only
Answer :- d
18. Which among the following are the causes of cost-push inflation?
- Deficit financing
- Increase in administered prices
- Increase in interest rates
- Increase in population
- Increase in oil prices
Select the correct answer using the codes given below:
a) 2, 3, 4 and 5
b) 1, 3 and 5
c) 3 and 5 only
d) 1, 2, 4 and 5
Answer :- c
19. Consider the following statements:
- A uniform market across the nation helps in controlling inflation levels in goods and services.
- Supply side factors usually take a longer time period than the demand side factors to adjust
- Agencies engaged in the management of money supply can affect demand side factors to influence inflation levels in economy
Select the correct answer using the codes given below:
a) 1 and 3 only
b) 2 and 3 only
c) 1 and 2 only
d) 1, 2 and 3
Answer :- d
20. Consider the following statements:
- The wholesale price index gives more weightage to the primary products because of the dominant role of agriculture in the Indian economy
- The consumer price index gives more weightage to manufactured articles on account of change in demand pattern in the economy
Which of the statements given above/is are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer :- d