MCQs on Inflation

Inflation is the general rise in the prices of goods and services in an economy, over a period of time. It reduces the purchasing power of consumers, because each unit of currency can purchase fewer products with an increase in the general price levels.

Below is a list of multiple-choice questions and answers on Inflation to help students understand the topic better.

1. High inflation levels in the economy leads to _______ in the supply of money.
   1. Increase
   2. Decrease
   3. No change
   4. None of the above

Answer: a

2. ______ compared inflation with robbers.
   1. Amartya Sen
   2. Professor Brahmand and Wakeel
   3. Professor Jagdish Bhagwati
   4. Professor Key

Answer: b

3. Which of the following concepts is the opposite of inflation?
   1. Deflation
   2. Stagflation
   3. Recession
   4. None of the above

Answer: a

4. A government resorts to __________ to reduce inflation.
   1. Cuts in government spending
   2. Increase in government expenditure
   3. Reduction in repo rate
   4. None of the above

Answer: a

5. When the price levels of goods and services are falling continuously, this phenomenon is called _________.
   1. Deflation
   2. Stagflation
   3. Inflation
   4. None of the above

Answer: a

6. If too much money is chasing too few goods, the resulting inflation is known as __________.
   1. Stagflation
   2. Cost-push inflation
   3. Demand-pull inflation
   4. None of the above

Answer: c

7. The main causes of inflation in India are ___________.
   1. The inadequate rise in industrial production
   2. Erratic agricultural growth
   3. Deficit financing
   4. All of the above

Answer: d

8. _____ is an effective method to control inflation in the economy.
   1. Cash reserve ratio
   2. Selective control of credit
   3. Bank rate policy
   4. None of the above

Answer: a

9. Inflation is measured by _______.
   1. Consumer price index
   2. Wholesale price index
   3. Marshall’s index
   4. None of the above

Answer: a

10. When inflation is a result of an increase in the price of factors of production, the result is ________.
    1. Stagflation
    2. Cost-push inflation
    3. Demand-pull inflation
    4. None of the above

Answer: b

11. The combination of stagnation and inflation is known as _____.
    1. Stagflation
    2. Cost-push inflation
    3. Demand-pull inflation
    4. None of the above

Answer: a

12. When the central government reduces the value of the domestic currency in terms of foreign currency, this phenomenon is called ______.
    1. Depreciation
    2. Appreciation
    3. Devaluation
    4. None of the above

Answer: c

13. In the context of inflation control, what does one mean when they say sterilisation of foreign inflow?
    1. Withdrawing an equivalent local currency to maintain the desired rate of exchange
    2. Complying with the regulations for import and export
    3. Filtering of the black money within an economy
    4. None of the above

Answer: a

14. The Reserve Bank of India (RBI) can take the measure of _________ to control inflation within the country.
    1. Rationing of credit
    2. Introducing a progressive tax system
    3. Improving profits of the public sector
    4. Controlling public expenditure

Answer: a

15. Which one of the following steps taken by the Government of India effectively controlled the double-digit rate of inflation in the economy in the 1970s?
    1. Contain unproductive expenditure and budget deficits
    2. Pursue an export-oriented strategy
    3. Streamline public distribution system
    4. Enhance production of all public goods

Answer: a

16. The purchasing power of money varies ______.
    1. Directly with the volume of employment
    2. Inversely with the price level
    3. Directly with the interest rate
    4. Directly with the price level

Answer: b

17. How does inflation help in the redistribution of income?
    1. Disproportional change in prices
    2. Proportional changes in prices
    3. Falling prices
    4. Rising prices

Answer: a

18. The item with the maximum weightage in the Wholesale Price Index is _______.
    1. Food items
    2. Manufactured products
    3. Fuel and power
    4. None of the above

Answer: b

19. The Consumer Price Index helps to measure the degree to which ___________.
    1. Consumer prices have risen relative to the wage level in the economy
    2. Distribution of income between two different sets of income recipients at the same point in time
    3. Distribution of income between two different sets of income recipients during different periods
    4. None of the above

Answer: c

20. The share of food items within India’s total consumption expenditure has reduced within the last two decades because of _________.
    1. Increase in people’s income levels
    2. The availability of foodgrains has declined in the country
    3. Increase in the share of non-food items
    4. None of the above

Answer: a

Also See:

• MCQs on Indian Economy
• Difference between Internal Trade and External Trade