MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO INFLATION: TYPES OF INFLATION; CAUSES AND EFFECTS OF INFLATION; INFLATIONARY

What is inflation?
a) Increase in the supply of money
b) Decrease in the supply of money
c) Increase in the general price level of goods and services over a period of time
d) Decrease in the general price level of goods and services over a period of time
Answer: c) Increase in the general price level of goods and services over a period of time

Which of the following is not a type of inflation?
a) Demand-pull inflation
b) Cost-push inflation
c) Hyperinflation
d) Contractionary inflation
Answer: d) Contractionary inflation

What is demand-pull inflation?
a) Caused by a decrease in aggregate demand
b) Caused by an increase in aggregate demand
c) Caused by a decrease in the money supply
d) Caused by an increase in the money supply
Answer: b) Caused by an increase in aggregate demand

Which of the following is a cause of cost-push inflation?
a) Excessive government spending
b) Decrease in production costs
c) Increase in wages
d) Decrease in import prices
Answer: c) Increase in wages

How does inflation affect consumers?
a) Increases the purchasing power of money
b) Decreases the purchasing power of money
c) No impact on purchasing power
d) Increases savings
Answer: b) Decreases the purchasing power of money

Which of the following is a tool used by the Reserve Bank of India (RBI) to control inflation?
a) Increase in government spending
b) Decrease in interest rates
c) Increase in money supply
d) Increase in taxes
Answer: d) Increase in taxes

What is the primary effect of inflation on savers?
a) Increases the value of savings
b) Decreases the value of savings
c) No impact on the value of savings
d) Encourages more saving
Answer: b) Decreases the value of savings

Which of the following is a social effect of inflation?
a) Reduces income inequality
b) Increases income inequality
c) Encourages investment
d) Improves standard of living
Answer: b) Increases income inequality

What is stagflation?
a) High inflation accompanied by high unemployment and stagnant demand
b) Low inflation accompanied by high unemployment and stagnant demand
c) High inflation accompanied by low unemployment and booming demand
d) Low inflation accompanied by low unemployment and booming demand
Answer: a) High inflation accompanied by high unemployment and stagnant demand

What is the most common measure of inflation in India?
a) Consumer Price Index (CPI)
b) Producer Price Index (PPI)
c) Gross Domestic Product (GDP) deflator
d) Wholesale Price Index (WPI)
Answer: a) Consumer Price Index (CPI)

Which of the following is a consequence of hyperinflation?
a) Stable currency value
b) Rapid erosion of purchasing power
c) Increased investor confidence
d) Lower interest rates
Answer: b) Rapid erosion of purchasing power

In India, which sector is most affected by cost-push inflation?
a) Agriculture
b) Manufacturing
c) Services
d) Information Technology
Answer: a) Agriculture

What is the main difference between demand-pull inflation and cost-push inflation?
a) Cause of inflation
b) Effect on employment
c) Effect on economic growth
d) Impact on consumer spending
Answer: a) Cause of inflation

Which of the following is not a cause of demand-pull inflation?
a) Increase in consumer spending
b) Expansionary fiscal policy
c) Increase in money supply
d) Decrease in aggregate demand
Answer: d) Decrease in aggregate demand

What is the impact of inflation on fixed-income earners?
a) Increased purchasing power
b) Decreased purchasing power
c) No change in purchasing power
d) Increased savings
Answer: b) Decreased purchasing power

Which of the following is an effect of inflation on exports?
a) Decreases competitiveness
b) Increases demand for exports
c) Reduces trade deficit
d) Boosts domestic production
Answer: a) Decreases competitiveness

How does inflation affect borrowers who have fixed-rate loans?
a) Decreases the real value of debt
b) Increases the real value of debt
c) No impact on the real value of debt
d) Encourages borrowing
Answer: b) Increases the real value of debt

Which of the following is a long-term consequence of high inflation?
a) Increased economic stability
b) Decreased investment
c) Stable exchange rates
d) Lower interest rates
Answer: b) Decreased investment

What is the role of expectations in inflation?
a) Expectations have no impact on inflation
b) Expectations influence consumer behavior but not inflation
c) Expectations can influence actual inflation through their impact on wage and price setting
d) Expectations only affect inflation in developed countries
Answer: c) Expectations can influence actual inflation through their impact on wage and price setting

Which of the following is not a measure to control inflation?
a) Tightening monetary policy
b) Reducing government spending
c) Increasing taxes
d) Decreasing interest rates
Answer: d) Decreasing interest rates

What is the primary reason for the Reserve Bank of India (RBI) to target inflation?
a) To stabilize employment
b) To encourage economic growth
c) To maintain price stability
d) To reduce income inequality
Answer: c) To maintain price stability

What is the impact of inflation on real wages?
a) Increases real wages
b) Decreases real wages
c) No impact on real wages
d) Increases employment opportunities
Answer: b) Decreases real wages

Which of the following is an example of a cost-push factor contributing to inflation?
a) Increased consumer spending
b) Rise in oil prices
c) Expansionary monetary policy
d) Decrease in indirect taxes
Answer: b) Rise in oil prices

What is the role of inflation targeting in monetary policy?
a) To keep inflation within a target range
b) To eliminate inflation entirely
c) To maximize economic growth
d) To stabilize exchange rates
Answer: a) To keep inflation within a target range

Which of the following is a characteristic of moderate inflation?
a) Inflation rate above 100%
b) Inflation rate between 5% and 10%
c) Inflation rate below 1%
d) Inflation rate at 0%
Answer: b) Inflation rate between 5% and 10%

What is the relationship between inflation and the Phillips curve?
a) Inflation and unemployment have a direct relationship
b) Inflation and unemployment have an inverse relationship
c) Inflation has no impact on unemployment
d) Inflation and unemployment are unrelated
Answer: b) Inflation and unemployment have an inverse relationship

Which of the following is not a consequence of high inflation?
a) Reduced purchasing power
b) Redistribution of income
c) Increased economic efficiency
d) Uncertainty in financial markets
Answer: c) Increased economic efficiency

What is the impact of inflation on fixed-income retirees?
a) Improves their standard of living
b) Reduces their standard of living
c) No impact on their standard of living
d) Encourages more saving
Answer: b) Reduces their standard of living

Which of the following is an example of demand-pull inflation in India?
a) Decrease in government spending
b) Increase in agricultural productivity
c) Rise in consumer spending due to festival season
d) Decrease in import prices
Answer: c) Rise in consumer spending due to festival season

How does inflation affect the real value of savings?
a) Increases the real value of savings
b) Decreases the real value of savings
c) No impact on the real value of savings
d) Encourages spending instead of saving
Answer: b) Decreases the real value of savings

What is the impact of inflation on investment?
a) Encourages investment
b) Discourages investment
c) No impact on investment
d) Reduces risk associated with investment
Answer: b) Discourages investment

Which of the following is a consequence of deflation?
a) Increase in the value of money
b) Decrease in the value of money
c) Increase in aggregate demand
d) Increase in exports
Answer: a) Increase in the value of money

How does inflation affect lenders?
a) Increases real interest rates
b) Decreases real interest rates
c) No impact on real interest rates
d) Increases risk associated with lending
Answer: b) Decreases real interest rates

What is the impact of inflation on government debt?
a) Reduces the real value of government debt
b) Increases the real value of government debt
c) No impact on the real value of government debt
d) Encourages government borrowing
Answer: b) Increases the real value of government debt

Which of the following is a consequence of hyperinflation?
a) Stable economic conditions
b) Increase in savings
c) Collapse of currency
d) Economic growth
Answer: c) Collapse of currency

What is the impact of inflation on income distribution?
a) Reduces income inequality
b) Increases income inequality
c) No impact on income distribution
d) Encourages saving
Answer: b) Increases income inequality

Which of the following is an example of an external factor causing inflation in India?
a) Increase in government spending
b) Rise in international oil prices
c) Decrease in money supply
d) Decrease in indirect taxes
Answer: b) Rise in international oil prices

How does inflation affect the cost of borrowing?
a) Decreases the cost of borrowing
b) Increases the cost of borrowing
c) No impact on the cost of borrowing
d) Reduces the need for borrowing
Answer: b) Increases the cost of borrowing

What is the impact of inflation on international competitiveness?
a) Increases international competitiveness
b) Decreases international competitiveness
c) No impact on international competitiveness
d) Encourages imports
Answer: b) Decreases international competitiveness

What is the impact of inflation on savings behavior?
a) Encourages saving
b) Discourages saving
c) No impact on saving behavior
d) Increases the risk associated with saving
Answer: b) Discourages saving

Which of the following is a consequence of unanticipated inflation?
a) Redistributes income from borrowers to lenders
b) Redistributes income from lenders to borrowers
c) No impact on income distribution
d) Increases investment
Answer: a) Redistributes income from borrowers to lenders

How does inflation affect the cost of living?
a) Decreases the cost of living
b) Increases the cost of living
c) No impact on the cost of living
d) Reduces income inequality
Answer: b) Increases the cost of living

What is the impact of inflation on long-term savings?
a) Preserves the real value of savings
b) Erodes the real value of savings
c) No impact on the real value of savings
d) Increases interest earned on savings
Answer: b) Erodes the real value of savings

Which of the following is a characteristic of hyperinflation?
a) Low inflation rate
b) High inflation rate
c) Stable prices
d) Decrease in unemployment
Answer: b) High inflation rate

What is the impact of inflation on fixed-income individuals?
a) Improves their purchasing power
b) Decreases their purchasing power
c) No impact on their purchasing power
d) Encourages investment
Answer: b) Decreases their purchasing power

Which of the following is an example of cost-push inflation in India?
a) Increase in consumer spending
b) Rise in wages due to labor strikes
c) Expansionary monetary policy
d) Decrease in indirect taxes
Answer: b) Rise in wages due to labor strikes

What is the impact of inflation on the economy’s productive capacity?
a) Increases the economy’s productive capacity
b) Decreases the economy’s productive capacity
c) No impact on the economy’s productive capacity
d) Increases efficiency
Answer: b) Decreases the economy’s productive capacity

How does inflation affect asset prices?
a) Decreases asset prices
b) Increases asset prices
c) No impact on asset prices
d) Reduces volatility in asset prices
Answer: b) Increases asset prices

Which of the following is a consequence of high inflation?
a) Reduced uncertainty in financial markets
b) Stability in economic conditions
c) Lower interest rates
d) Distorted price signals
Answer: d) Distorted price signals

What is the impact of inflation on real interest rates?
a) Increases real interest rates
b) Decreases real interest rates
c) No impact on real interest rates
d) Increases investment risk
Answer: b) Decreases real interest rates