Inflation – Multiple Choice Questions (MCQs)

1. 1. What is inflation?

   • A. A decrease in the general price level
   • B. A sustained increase in the general price level
   • C. A rapid increase in economic growth
   • D. A decrease in the value of money in terms of gold

2. 2. What is the most common measure of inflation in India?

   • A. Wholesale Price Index (WPI)
   • B. Consumer Price Index (CPI)
   • C. Gross Domestic Product (GDP) deflator
   • D. Index of Industrial Production (IIP)

3. 3. What is demand-pull inflation?

   • A. Inflation caused by a decrease in aggregate supply
   • B. Inflation caused by an increase in aggregate demand
   • C. Inflation caused by rising wages
   • D. Inflation caused by government printing more money

4. 4. What is cost-push inflation?

   • A. Inflation caused by increased production costs
   • B. Inflation caused by increased consumer spending
   • C. Inflation caused by a decrease in the money supply
   • D. Inflation caused by higher taxes

5. 5. What is hyperinflation?

   • A. A mild increase in the price level
   • B. A moderate increase in the price level
   • C. A very rapid and out-of-control increase in the price level
   • D. A decrease in the price level over a short period

6. 6. What is deflation?

   • A. A sustained increase in the general price level
   • B. A sustained decrease in the general price level
   • C. A period of low economic growth
   • D. A rapid increase in the value of money

7. 7. What are the effects of high inflation?

   • A. Increased purchasing power
   • B. Reduced cost of borrowing
   • C. Erosion of savings and increased uncertainty
   • D. Stable economic growth

8. 8. Who is primarily responsible for controlling inflation in India?

   • A. Ministry of Finance
   • B. Reserve Bank of India (RBI)
   • C. NITI Aayog
   • D. Prime Minister's Office

9. 9. Which of the following is a tool used by the RBI to control inflation?

   • A. Increasing government spending
   • B. Reducing taxes
   • C. Increasing the repo rate
   • D. Decreasing the cash reserve ratio

10. 10. What is the repo rate?

    • A. The rate at which commercial banks borrow money from the RBI against government securities
    • B. The rate at which the RBI borrows money from commercial banks
    • C. The rate at which commercial banks lend to each other
    • D. The rate of interest on government bonds

11. 11. What is the reverse repo rate?

    • A. The rate at which commercial banks borrow money from the RBI
    • B. The rate at which the RBI borrows money from commercial banks
    • C. The rate at which commercial banks lend to each other
    • D. The rate of interest on treasury bills

12. 12. What is the Cash Reserve Ratio (CRR)?

    • A. The percentage of a bank's total deposits that it must maintain with the RBI in cash form
    • B. The percentage of a bank's total deposits that it can lend
    • C. The ratio of a bank's assets to its liabilities
    • D. The minimum capital requirement for banks