Inflation – Indian Economy, Previous Year Questions(UPSC CSE)(2011-24)

1. In India, which one of the following is responsible for maintaining price stability by controlling inflation?

(a) Department of Consumer Affairs

(b) Expenditure Management Commission

(c) Financial Stability and Development Council

(d) Reserve Bank of India

2.With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?

1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing wages
4. Higher purchasing power
5. Rising interest rates

Select the correct answer using the code given below.

(a) 1, 2 and 4 only

(b) 3, 4 and 5 only

(c) 1, 2, 3 and 5 only

(d) 1, 2, 3, 4 and 5

3. Which of the following is likely to be the most inflationary in its effects?

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from the banks to finance a budget deficit

(d) Creation of new money to finance a budget deficit

4. India has experienced persistent and high food inflation in the recent past. What could be the reasons?

1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3. The food supply chain has structural constraints.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2, and 3

5. A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?

(a) It is the impact of drastic deficiency in supply due to failure of crops

(b) It is the impact of the surge in demand due to rapid economic growth

(c) It is the impact of the price levels of previous year on the calculation of inflation rate

(d) None of the statements (a), (b) and (c) given above is correct in this context

6. Which of the following factors/policies were affecting the price of rice in India in the recent past?

1. Minimum Support Price
2. Government’s trading
3. Government’s stockpiling
4. Consumer subsidies

Select the correct answer using the code given below:

(a) 1, 2 and 4 only

(b) 1, 3 and 4 only

(c) 2 and 3 only

(d) 1, 2, 3 and 4

7. Consider the following statements:

1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 only

(c) 3 only

(d) 1, 2 and 3

8. In a given year in India, official poverty lines are higher in some States than in others because

(a) Poverty rates vary from State to State

(b) Price levels vary from State to State

(c) Gross State Product varies from State to State

(d) Quality of public distribution varies from State to State

9. Which of the following brings out the ‘Consumer Price Index Number for Industrial Workers?

(a) The Reserve Bank of India

(b) The Department of Economic Affairs

(c) The Labour Bureau

(d) The Department of Personnel and Training

10. With reference to inflation in India, which of the following statements is correct? 

(a) Controlling the inflation in India is the responsibility of the Government of India only

(b) The Reserve Bank of India has no role in controlling the inflation

(c) Decreased money circulation helps in controlling the inflation

(d) Increased money circulation helps in controlling the inflation

11. With reference to inflation in India, which of the following statements is correct? 

(a) Controlling the inflation in India is the responsibility of the Government of India only

(b) The Reserve Bank of India has no role in controlling the inflation

(c) Decreased money circulation helps in controlling the inflation

(d) Increased money circulation helps in controlling the inflation

12. A rise in general level of prices may be caused by

1. an increase in the money supply
2. a decrease in the aggregate level of output
3. an increase in the effective demand

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

13. Which one of the following is likely to be the most inflationary in its effect? 

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from banks to finance a budget deficit

(d) Creating new money to finance a budget deficit

14. Consider the following statements: 

1. Inflation benefits the debtors.
2. Inflation benefits the bondholders.

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

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Key with Explanation:

1. In India, which one of the following is responsible for maintaining price stability by controlling inflation?

(a) Department of Consumer Affairs

(b) Expenditure Management Commission

(c) Financial Stability and Development Council

(d) Reserve Bank of India

Explanation:

2. With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?

1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing wages
4. Higher purchasing power
5. Rising interest rates

Select the correct answer using the code given below.

(a) 1, 2 and 4 only

(b) 3, 4 and 5 only

(c) 1, 2, 3 and 5 only

(d) 1, 2, 3, 4 and 5

Explanation:

3. Which of the following is likely to be the most inflationary in its effects?

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from the banks to finance a budget deficit

(d) Creation of new money to finance a budget deficit

Explanation:

4. India has experienced persistent and high food inflation in the recent past. What could be the reasons?

1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3. The food supply chain has structural constraints.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2, and 3

Explanation:

5. A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?

(a) It is the impact of drastic deficiency in supply due to failure of crops

(b) It is the impact of the surge in demand due to rapid economic growth

(c) It is the impact of the price levels of previous year on the calculation of inflation rate

(d) None of the statements (a), (b) and (c) given above is correct in this context

Explanation:

6. Which of the following factors/policies were affecting the price of rice in India in the recent past?

1. Minimum Support Price
2. Government’s trading
3. Government’s stockpiling
4. Consumer subsidies

Select the correct answer using the code given below:

(a) 1, 2 and 4 only

(b) 1, 3 and 4 only

(c) 2 and 3 only

(d) 1, 2, 3 and 4

Explanation:

7. Consider the following statements:

1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 only

(c) 3 only

(d) 1, 2 and 3

Explanation:

8. In a given year in India, official poverty lines are higher in some States than in others because

(a) Poverty rates vary from State to State

(b) Price levels vary from State to State

(c) Gross State Product varies from State to State

(d) Quality of public distribution varies from State to State

Explanation:

9. Which of the following brings out the ‘Consumer Price Index Number for Industrial Workers?

(a) The Reserve Bank of India

(b) The Department of Economic Affairs

(c) The Labour Bureau

(d) The Department of Personnel and Training

Explanation:

10. With reference to inflation in India, which of the following statements is correct? 

(a) Controlling the inflation in India is the responsibility of the Government of India only

(b) The Reserve Bank of India has no role in controlling the inflation

(c) Decreased money circulation helps in controlling the inflation

(d) Increased money circulation helps in controlling the inflation

Explanation:

11. With reference to inflation in India, which of the following statements is correct? 

(a) Controlling the inflation in India is the responsibility of the Government of India only

(b) The Reserve Bank of India has no role in controlling the inflation

(c) Decreased money circulation helps in controlling the inflation

(d) Increased money circulation helps in controlling the inflation

Explanation:

12. A rise in general level of prices may be caused by

1. an increase in the money supply
2. a decrease in the aggregate level of output
3. an increase in the effective demand

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

Explanation:

13. Which one of the following is likely to be the most inflationary in its effect? 

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from banks to finance a budget deficit

(d) Creating new money to finance a budget deficit

Explanation:

14. Consider the following statements: 

1. Inflation benefits the debtors.
2. Inflation benefits the bondholders.

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

Explanation: