Inflation – Multiple Choice Questions (MCQs)

1. 13. What is the Statutory Liquidity Ratio (SLR)?

   • A. The minimum percentage of deposits that a commercial bank has to maintain in the form of liquid assets
   • B. The maximum percentage of deposits that a bank can lend
   • C. The ratio of a bank's liquid assets to its total assets
   • D. The interest rate charged by banks on loans

2. 14. What is the impact of an increase in the money supply on inflation?

   • A. It tends to decrease inflation
   • B. It tends to increase inflation
   • C. It has no significant impact on inflation
   • D. The impact depends on the fiscal policy

3. 15. What is the Phillips Curve?

   • A. A curve showing the relationship between inflation and unemployment
   • B. A curve showing the relationship between interest rates and investment
   • C. A curve showing the relationship between savings and investment
   • D. A curve showing the relationship between government spending and taxation

4. 16. What is stagflation?

   • A. A situation of high economic growth and high inflation
   • B. A situation of low economic growth and low inflation
   • C. A situation of high unemployment and high inflation
   • D. A situation of low unemployment and low inflation

5. 17. What are 'administered prices'?

   • A. Prices determined by market forces
   • B. Prices set by the government
   • C. Prices charged by private monopolies
   • D. Prices of imported goods

6. 18. What is 'core inflation'?

   • A. Inflation that includes volatile food and fuel prices
   • B. Inflation that excludes volatile food and fuel prices
   • C. Inflation in the manufacturing sector only
   • D. Inflation in the services sector only

7. 19. What is 'headline inflation'?

   • A. Inflation that excludes volatile food and fuel prices
   • B. The overall inflation rate including all goods and services
   • C. Inflation in urban areas only
   • D. Inflation in rural areas only

8. 20. What is the effect of a depreciation of the Indian Rupee on inflation?

   • A. It tends to decrease import prices and thus inflation
   • B. It tends to increase import prices and thus inflation
   • C. It has no significant impact on inflation
   • D. The impact depends on export volumes

9. 21. What is the target range for inflation set by the RBI?

   • A. 2% to 4%
   • B. 4% to 6%
   • C. 6% to 8%
   • D. 3% to 5%

10. 22. What is 'base effect' in inflation calculation?

    • A. The impact of price fluctuations in the base year on the current year's inflation rate
    • B. The impact of government subsidies on prices
    • C. The effect of seasonal demand on prices
    • D. The impact of international oil prices on domestic inflation

11. 23. What is the role of fiscal policy in controlling inflation?

    • A. Increasing government spending to boost demand
    • B. Reducing taxes to increase disposable income
    • C. Reducing government spending and increasing taxes to reduce aggregate demand
    • D. Providing subsidies to lower prices

12. 24. What is 'imported inflation'?

    • A. Inflation caused by domestic factors only
    • B. Inflation caused by rising prices of imported goods
    • C. Inflation in countries that are major trading partners
    • D. Inflation affecting only luxury goods