MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO CONTROL OF INFLATION: MONETARY, FISCAL, AND DIRECT MEASURES
Which of the following measures is a monetary policy tool used to control inflation in India?
a) Increasing government spending
b) Reducing the reserve ratio
c) Implementing price controls
d) Providing subsidies
Answer: b) Reducing the reserve ratio
Fiscal policy measures to control inflation in India primarily involve:
a) Decreasing interest rates
b) Increasing government spending
c) Selling government securities
d) Restricting imports
Answer: b) Increasing government spending
Which direct measure is commonly used by the Reserve Bank of India (RBI) to combat inflation?
a) Decreasing income taxes
b) Implementing price ceilings
c) Regulating money supply
d) Providing cash subsidies
Answer: c) Regulating money supply
When inflation is high, the RBI may opt to:
a) Increase the repo rate
b) Decrease the repo rate
c) Lower income tax rates
d) Increase government borrowing
Answer: a) Increase the repo rate
Which of the following is an example of a direct measure to control inflation in India?
a) Implementing import tariffs
b) Decreasing government spending
c) Issuing inflation-indexed bonds
d) Providing unemployment benefits
Answer: c) Issuing inflation-indexed bonds
What tool does the Reserve Bank of India (RBI) primarily use to regulate inflation through monetary policy?
a) Open market operations
b) Export subsidies
c) Corporate tax cuts
d) Public works programs
Answer: a) Open market operations
In response to high inflation, the Indian government might employ fiscal measures such as:
a) Reducing public expenditure
b) Lowering import tariffs
c) Increasing welfare benefits
d) Implementing price controls on essential goods
Answer: a) Reducing public expenditure
Which of the following is a direct measure often used to control inflation by the Indian government?
a) Issuing bonds with high-interest rates
b) Implementing trade barriers
c) Distributing food subsidies
d) Increasing the money supply
Answer: c) Distributing food subsidies
When the RBI sells government securities in the open market, it is most likely an attempt to:
a) Decrease the money supply
b) Increase aggregate demand
c) Lower interest rates
d) Boost foreign investment
Answer: a) Decrease the money supply
To combat inflation, the Indian government might implement supply-side policies such as:
a) Reducing income taxes
b) Investing in infrastructure projects
c) Implementing stricter regulations on businesses
d) Increasing minimum wage rates
Answer: c) Implementing stricter regulations on businesses
Which measure is often used by the RBI to manage inflation expectations?
a) Contractionary fiscal policy
b) Forward guidance on interest rates
c) Currency devaluation
d) Quantitative easing
Answer: b) Forward guidance on interest rates
During periods of high inflation, the RBI might increase the Cash Reserve Ratio (CRR) to:
a) Stimulate borrowing and investment
b) Encourage higher consumer spending
c) Reduce the money supply
d) Boost exports
Answer: c) Reduce the money supply
Which of the following is an indirect measure to control inflation?
a) Implementing price controls
b) Providing direct cash transfers
c) Increasing agricultural subsidies
d) Tightening credit availability
Answer: d) Tightening credit availability
One way the Indian government can directly influence inflation is through:
a) Regulation of foreign exchange rates
b) Issuing bonds with lower coupon rates
c) Controlling the prices of essential commodities
d) Encouraging foreign direct investment
Answer: c) Controlling the prices of essential commodities
In response to persistent inflationary pressures, the RBI may resort to:
a) Reducing the Statutory Liquidity Ratio (SLR)
b) Lowering the Marginal Standing Facility (MSF) rate
c) Increasing the Reverse Repo Rate
d) Expanding the fiscal deficit
Answer: c) Increasing the Reverse Repo Rate
Inflation targeting is a strategy where the central bank aims to keep inflation within a specific range by adjusting:
a) Exchange rates
b) Import tariffs
c) Interest rates
d) Corporate tax rates
Answer: c) Interest rates
Which of the following is a tool of monetary policy that can be used to control inflation by influencing the cost and availability of credit?
a) Credit guarantee schemes
b) Export subsidies
c) Repo rate
d) Agricultural subsidies
Answer: c) Repo rate
Fiscal measures to control inflation may include:
a) Reducing the budget deficit
b) Increasing social welfare spending
c) Lowering direct taxes
d) Decreasing government borrowing
Answer: a) Reducing the budget deficit
A direct measure to control inflation in India includes:
a) Increasing the money supply
b) Implementing austerity measures
c) Introducing import quotas
d) Providing tax incentives for investment
Answer: b) Implementing austerity measures
To reduce inflationary pressures, the RBI may use open market operations to:
a) Increase the money supply
b) Decrease the money supply
c) Stabilize foreign exchange rates
d) Provide liquidity support to banks
Answer: b) Decrease the money supply
Which of the following measures is an example of a supply-side policy used to control inflation?
a) Increasing government spending on infrastructure
b) Reducing indirect taxes
c) Implementing stricter regulations on pollution
d) Providing subsidies for consumer goods
Answer: c) Implementing stricter regulations on pollution
During periods of high inflation, the RBI may adopt a hawkish monetary policy stance, which is characterized by:
a) Lowering interest rates
b) Increasing government spending
c) Tightening monetary policy
d) Decreasing the Cash Reserve Ratio (CRR)
Answer: c) Tightening monetary policy
Fiscal measures aimed at controlling inflation might involve:
a) Expanding public sector employment
b) Increasing agricultural subsidies
c) Implementing progressive taxation
d) Privatizing state-owned enterprises
Answer: c) Implementing progressive taxation
Which of the following measures is used by the government to directly influence the supply of money in the economy?
a) Adjusting the repo rate
b) Issuing treasury bills
c) Providing export subsidies
d) Implementing price controls
Answer: b) Issuing treasury bills
An indirect measure to control inflation is:
a) Increasing government spending
b) Lowering interest rates
c) Implementing wage controls
d) Decreasing the supply of money
Answer: b) Lowering interest rates
In response to inflationary pressures, the Indian government might prioritize policies aimed at:
a) Boosting exports
b) Increasing government borrowing
c) Expanding social welfare programs
d) Reducing the fiscal deficit
Answer: d) Reducing the fiscal deficit
Which of the following is a direct measure used by the government to control inflationary expectations?
a) Providing subsidies for essential goods
b) Increasing the supply of money
c) Setting price floors for agricultural products
d) Communicating a credible inflation target
Answer: d) Communicating a credible inflation target
To reduce inflation, the RBI may use a contractionary monetary policy, which involves:
a) Decreasing the Cash Reserve Ratio (CRR)
b) Expanding the money supply
c) Lowering the statutory liquidity ratio (SLR)
d) Selling government securities
Answer: d) Selling government securities
Fiscal measures aimed at controlling inflation may include:
a) Increasing government subsidies
b) Reducing public sector investment
c) Lowering corporate tax rates
d) Expanding the money supply
Answer: b) Reducing public sector investment
Which of the following is a supply-side measure that can help alleviate inflationary pressures in the long term?
a) Implementing import tariffs
b) Increasing government spending
c) Investing in education and skill development
d) Providing direct cash transfers to citizens
Answer: c) Investing in education and skill development
Inflation targeting as a monetary policy strategy primarily focuses on controlling:
a) The exchange rate
b) Fiscal deficit
c) Money supply
d) Unemployment rate
Answer: c) Money supply
During periods of high inflation, the RBI might opt for:
a) Expanding the discount rate
b) Increasing the liquidity ratio
c) Lowering the repo rate
d) Selling government securities
Answer: d) Selling government securities
To control inflation, the government might implement structural reforms aimed at:
a) Increasing market competition
b) Providing subsidies for essential goods
c) Implementing wage controls
d) Reducing government regulation
Answer: a) Increasing market competition
A measure used by the RBI to manage inflation expectations is:
a) Raising the statutory liquidity ratio (SLR)
b) Lowering the bank rate
c) Communicating inflation targets
d) Increasing government borrowing
Answer: c) Communicating inflation targets
During periods of high inflation, the RBI might tighten monetary policy by:
a) Lowering reserve requirements
b) Increasing the supply of money
c) Raising the marginal standing facility (MSF) rate
d) Providing liquidity support to banks
Answer: c) Raising the marginal standing facility (MSF) rate
Fiscal measures to control inflation may involve:
a) Decreasing government spending
b) Expanding social welfare programs
c) Lowering indirect taxes
d) Increasing government subsidies
Answer: a) Decreasing government spending
Inflation expectations refer to:
a) Anticipated changes in consumer preferences
b) Predictions about future price levels
c) Government interventions to stabilize prices
d) Historical trends in inflation rates
Answer: b) Predictions about future price levels
A fiscal measure aimed at controlling inflation is:
a) Reducing income tax rates
b) Increasing public sector borrowing
c) Expanding social welfare programs
d) Implementing price controls
Answer: a) Reducing income tax rates
One indirect measure used by the RBI to control inflation is:
a) Raising the reverse repo rate
b) Decreasing the statutory liquidity ratio (SLR)
c) Increasing government spending
d) Providing export subsidies
Answer: a) Raising the reverse repo rate
A direct measure to control inflation in India includes:
a) Implementing import quotas
b) Decreasing interest rates
c) Providing subsidies for essential goods
d) Expanding government borrowing
Answer: a) Implementing import quotas
To combat inflation, the RBI might engage in open market operations by:
a) Buying government securities
b) Increasing the discount rate
c) Lowering the repo rate
d) Expanding the money supply
Answer: a) Buying government securities
Supply-side measures to control inflation include:
a) Decreasing government spending
b) Implementing import tariffs
c) Providing subsidies for exports
d) Investing in technology and innovation
Answer: d) Investing in technology and innovation
During periods of inflation, the RBI may adopt a contractionary monetary policy stance by:
a) Lowering the reserve requirements
b) Increasing the money supply
c) Raising the repo rate
d) Providing liquidity support to banks
Answer: c) Raising the repo rate
An indirect measure used by the RBI to control inflation is:
a) Selling government securities
b) Decreasing the marginal standing facility (MSF) rate
c) Lowering the cash reserve ratio (CRR)
d) Increasing the money supply
Answer: a) Selling government securities
Fiscal measures aimed at controlling inflation may include:
a) Expanding public sector employment
b) Decreasing government subsidies
c) Lowering direct taxes
d) Increasing government borrowing
Answer: c) Lowering direct taxes
To reduce inflation, the RBI may use an expansionary monetary policy, which involves:
a) Decreasing the money supply
b) Increasing the Cash Reserve Ratio (CRR)
c) Lowering interest rates
d) Selling government securities
Answer: c) Lowering interest rates
An indirect measure to control inflation is:
a) Tightening credit availability
b) Decreasing government spending
c) Increasing agricultural subsidies
d) Expanding the money supply
Answer: a) Tightening credit availability
During periods of high inflation, the RBI might engage in sterilization operations to:
a) Increase the money supply
b) Decrease the money supply
c) Stabilize exchange rates
d) Boost consumer spending
Answer: b) Decrease the money supply
Fiscal measures aimed at controlling inflation might involve:
a) Expanding social welfare programs
b) Increasing public sector investment
c) Reducing corporate tax rates
d) Increasing government subsidies
Answer: c) Reducing corporate tax rates
Which of the following is a direct measure used by the Indian government to control inflation?
a) Selling government securities
b) Implementing import tariffs
c) Lowering interest rates
d) Expanding the money supply
Answer: b) Implementing import tariffs
