Inflation & Price Indices MCQs

Inflation Indexed Bonds (IIBs) issued by the Government of India are designed to:

• AProvide investors with returns that adjust for inflation, protecting real valueCorrect
• BAllow banks to lend at zero interest during high inflation
• CReplace the need for a monetary policy committee
• DGuarantee a fixed nominal return regardless of price changes

Which of the following is the most inflationary method of financing a government's budget deficit?

• ACreation of new money to finance the deficitCorrect
• BBorrowing from the public through government bonds
• CRaising income tax rates
• DRepaying existing public debt

Demand-pull inflation is most likely to arise when:

• AAggregate demand rises faster than the economy's productive capacityCorrect
• BThere is a sharp increase in production with no rise in demand
• CIndirect taxes are abolished permanently
• DImported crude prices collapse

With reference to CPI and WPI in India, consider the following statements: 1. CPI assigns a much larger weight to food than WPI. 2. WPI includes services with significant weight. Which of the statements given above is/are correct?

• A1 onlyCorrect
• B2 only
• CBoth 1 and 2
• DNeither 1 nor 2

Inflation can be controlled, among other methods, by reducing the circulation of money in the economy. This is because:

• ALower money circulation can reduce aggregate demand pressuresCorrect
• BMoney supply has no relation to prices
• CPrices always fall automatically when taxes are cut
• DProduction rises instantly whenever cash is withdrawn

Which agency has historically compiled the Consumer Price Index for Industrial Workers, a widely cited CPI series in India?

• ALabour BureauCorrect
• BSEBI
• CNational Payments Corporation of India
• DCompetition Commission of India

Inflation generally benefits which of the following, other things remaining the same?

• ADebtorsCorrect
• BCreditors receiving fixed repayments
• CHolders of idle cash balances
• DPeople on fixed nominal pensions

A rise in the general level of prices may be caused by which of the following? 1. Increase in money supply 2. Decrease in aggregate production 3. Increase in effective demand Select the correct answer using the code given below:

• A1, 2 and 3Correct
• B1 and 2 only
• C2 and 3 only
• D1 only

Economic growth is often associated with moderate inflation because:

• AExpanding demand and investment can put upward pressure on pricesCorrect
• BGrowth always produces deflation
• CGrowth eliminates all supply bottlenecks
• DHyperinflation is a necessary feature of growth

India has at times experienced persistent food inflation due to which of the following? 1. Changes in dietary patterns toward protein-rich food 2. Supply bottlenecks in agricultural marketing and storage 3. Rising input costs in agriculture Select the correct answer using the code given below:

• A1 and 2 only
• B1, 2 and 3Correct
• C2 and 3 only
• D1 only

In inflation measurement, the term "base effect" refers to:

• AThe impact of the previous year's price level on the current inflation rateCorrect
• BA permanent increase in money multiplier
• CThe fiscal deficit financed through RBI printing
• DA fall in the rupee against foreign currencies

Deflation means:

• AA persistent fall in the general price levelCorrect
• BA fall in the rate of inflation while prices still rise
• CDepreciation of the domestic currency
• DA recession in the financial sector only