MCQ RELATED TO CONTROL OF INFLATION: MONETARY/ FISCAL/ AND DIRECT MEASURES

1. Which of the following is a monetary measure to control inflation?

A) Increasing income tax rates
B) Reducing government spending
C) Increasing the repo rate
D) Subsidizing essential goods
Answer: C) Increasing the repo rate
2. The Reserve Bank of India (RBI) uses which tool to absorb excess liquidity from the market?

A) Reduction in public expenditure
B) Open market operations (OMO)
C) Increase in public sector wages
D) Imposition of price controls
Answer: B) Open market operations (OMO)
3. What is the primary aim of fiscal measures in controlling inflation?

A) Regulating money supply
B) Controlling the budget deficit
C) Stabilizing currency exchange rates
D) Directly setting the prices of goods
Answer: B) Controlling the budget deficit
4. Direct measures to control inflation in India include:

A) Increase in savings interest rates
B) Reduction in direct taxes
C) Imposition of price and wage controls
D) Increasing foreign exchange reserves
Answer: C) Imposition of price and wage controls
5. Which of the following is a common fiscal policy tool used to control inflation?

A) Adjusting the CRR (Cash Reserve Ratio)
B) Changing the base rate
C) Modifying government spending
D) Implementing open market operations
Answer: C) Modifying government spending
6. When the RBI increases the Cash Reserve Ratio (CRR), the immediate effect is:

A) Increase in bank lending
B) Decrease in money supply
C) Increase in consumer spending
D) Reduction in government debt
Answer: B) Decrease in money supply
7. The government of India can control inflation through fiscal policy by:

A) Raising direct tax rates
B) Lowering the repo rate
C) Increasing the Cash Reserve Ratio
D) Introducing new subsidies
Answer: A) Raising direct tax rates
8. Which body is primarily responsible for monetary policy in India?

A) Ministry of Finance
B) Planning Commission
C) Reserve Bank of India
D) Securities and Exchange Board of India
Answer: C) Reserve Bank of India
9. One of the direct measures to control inflation is:

A) Conducting open market operations
B) Imposing tariffs on imports
C) Implementing price controls on essential goods
D) Increasing the savings rate
Answer: C) Implementing price controls on essential goods
10. Fiscal measures to control inflation might include:

A) Decreasing the Statutory Liquidity Ratio (SLR)
B) Reducing public expenditure
C) Increasing the reverse repo rate
D) Enhancing foreign exchange reserves
Answer: B) Reducing public expenditure

11. Which of the following actions would the RBI take to curb inflation?

A) Decreasing the bank rate
B) Increasing the repo rate
C) Reducing the SLR
D) Increasing public sector wages
Answer: B) Increasing the repo rate
12. A fiscal measure to control inflation could be:

A) Increasing the reverse repo rate
B) Decreasing government subsidies
C) Increasing the CRR
D) Conducting OMOs
Answer: B) Decreasing government subsidies
13. The effect of increasing the SLR (Statutory Liquidity Ratio) is:

A) Increase in money supply
B) Decrease in bank lending capacity
C) Decrease in interest rates
D) Increase in consumer spending
Answer: B) Decrease in bank lending capacity
14. Direct measures to control inflation include:

A) Lowering income taxes
B) Setting maximum prices for essential goods
C) Reducing the CRR
D) Increasing government spending
Answer: B) Setting maximum prices for essential goods
15. Fiscal policy can control inflation by:

A) Raising indirect taxes
B) Reducing the base rate
C) Increasing the money supply
D) Decreasing foreign investment
Answer: A) Raising indirect taxes
16. The Reserve Bank of India can influence inflation through:

A) Changing government expenditure
B) Modifying the repo rate
C) Imposing direct taxes
D) Setting wage controls
Answer: B) Modifying the repo rate
17. Which is not a monetary measure to control inflation?

A) Open market operations
B) Repo rate adjustment
C) Cash Reserve Ratio
D) Public debt management
Answer: D) Public debt management
18. Reducing the budget deficit to control inflation is an example of:

A) Monetary policy
B) Fiscal policy
C) Direct measures
D) Supply-side policy
Answer: B) Fiscal policy
19. The reduction of indirect taxes to control inflation is:

A) A fiscal measure
B) A monetary measure
C) A direct measure
D) None of the above
Answer: A) A fiscal measure
20. What is the immediate effect of increasing the reverse repo rate?

A) Increase in money supply
B) Decrease in bank deposits
C) Increase in bank lending
D) Decrease in money supply
Answer: D) Decrease in money supply
21. Fiscal policy aims to control inflation by:

A) Adjusting the repo rate
B) Controlling public spending and taxation
C) Regulating the cash reserve ratio
D) Conducting open market operations
Answer: B) Controlling public spending and taxation
22. To control inflation, the government might:

A) Lower the reserve requirement
B) Reduce public sector wages
C) Increase the availability of credit
D) Decrease taxes on luxury goods
Answer: B) Reduce public sector wages
23. Which of the following is a direct measure to control inflation?

A) Increasing interest rates
B) Raising government expenditure
C) Imposing price controls on essential commodities
D) Reducing the fiscal deficit
Answer: C) Imposing price controls on essential commodities
24. An increase in the Cash Reserve Ratio by RBI results in:

A) Higher inflation
B) Lower inflation
C) Increased consumer spending
D) Increased liquidity in the market
Answer: B) Lower inflation
25. Fiscal deficit reduction as a measure to control inflation involves:

A) Increasing public expenditure
B) Reducing taxes
C) Increasing government revenue
D) Decreasing interest rates
Answer: C) Increasing government revenue
26. Which policy tool is primarily used by the RBI to control money supply?

A) Public spending
B) Direct taxes
C) Open market operations
D) Price controls
Answer: C) Open market operations
27. Which of the following is not typically used to control inflation?

A) Increasing the CRR
B) Lowering the SLR
C) Imposing wage freezes
D) Cutting public expenditure
Answer: B) Lowering the SLR
28. The government may control inflation by:

A) Increasing subsidies on essential goods
B) Decreasing direct taxes
C) Increasing indirect taxes
D) Lowering the repo rate
Answer: C) Increasing indirect taxes

29. The RBI uses which of the following to reduce inflation?

A) Increasing government borrowing
B) Increasing the statutory liquidity ratio
C) Increasing the fiscal deficit
D) Decreasing public sector investments
Answer: B) Increasing the statutory liquidity ratio
30. Which of these is a direct measure to combat inflation?

A) Price controls
B) Open market operations
C) Repo rate adjustments
D) Tax rate changes
Answer: A) Price controls
31. One way the government can reduce inflation is by:

A) Reducing public sector salaries
B) Increasing public sector investments
C) Lowering indirect taxes
D) Reducing the SLR
Answer: A) Reducing public sector salaries
32. A key objective of monetary policy in controlling inflation is:

A) Reducing public debt
B) Increasing government spending
C) Controlling money supply
D) Decreasing imports
Answer: C) Controlling money supply
33. Fiscal policy to control inflation may involve:

A) Lowering the repo rate
B) Reducing the fiscal deficit
C) Increasing the CRR
D) Decreasing the SLR
Answer: B) Reducing the fiscal deficit
34. Direct measures to control inflation in India include:

A) Open market operations
B) Increasing the cash reserve ratio
C) Setting price ceilings
D) Modifying tax policies
Answer: C) Setting price ceilings
35. Which is a primary goal of the RBI’s monetary policy?

A) Increasing public spending
B) Maintaining price stability
C) Reducing the budget deficit
D) Imposing tariffs on imports
Answer: B) Maintaining price stability
36. Fiscal policy can help control inflation by:

A) Increasing the repo rate
B) Lowering the SLR
C) Reducing government borrowing
D) Conducting open market operations
Answer: C) Reducing government borrowing
37. Increasing the CRR is a measure taken by the RBI to:

A) Increase consumer spending
B) Decrease money supply
C) Lower interest rates
D) Raise government revenue
Answer: B) Decrease money supply
38. Direct control of prices is an example of:

A) Monetary policy
B) Fiscal policy
C) Direct measures
D) Supply-side policy
Answer: C) Direct measures
39. Which fiscal measure can reduce inflation?

A) Decreasing income tax rates
B) Increasing public expenditure
C) Raising excise duties
D) Lowering import tariffs
Answer: C) Raising excise duties
40. What is the impact of raising the reverse repo rate?

A) Increases bank lending
B) Reduces money supply
C) Enhances consumer demand
D) Raises public sector wages
Answer: B) Reduces money supply
41. One of the methods to control inflation is:

A) Increasing direct taxes
B) Decreasing the CRR
C) Increasing government subsidies
D) Reducing the repo rate
Answer: A) Increasing direct taxes
42. The government might control inflation by:

A) Decreasing public sector jobs
B) Increasing subsidies
C) Reducing direct taxes
D) Lowering the SLR
Answer: A) Decreasing public sector jobs
43. Which of the following is a direct measure to control inflation?

A) Raising the repo rate
B) Increasing the fiscal deficit
C) Reducing direct taxes
D) Imposing price controls
Answer: D) Imposing price controls
44. Reducing the fiscal deficit helps control inflation by:

A) Increasing public debt
B) Reducing money supply
C) Enhancing consumer spending
D) Lowering interest rates
Answer: B) Reducing money supply
45. Which of these is not a monetary measure to control inflation?

A) Open market operations
B) Increasing the repo rate
C) Imposing price controls
D) Raising the CRR
Answer: C) Imposing price controls
46. A fiscal tool to control inflation is:

A) Decreasing the SLR
B) Reducing public expenditure
C) Increasing the repo rate
D) Conducting OMOs
Answer: B) Reducing public expenditure
47. To control inflation, the RBI may:

A) Decrease the reverse repo rate
B) Lower the CRR
C) Conduct open market sales
D) Increase public spending
Answer: C) Conduct open market sales
48. Direct measures to control inflation in India include:

A) Open market operations
B) Imposing import duties
C) Increasing the repo rate
D) Setting wage controls
Answer: D) Setting wage controls
49. What happens when the RBI increases the CRR?

A) Bank lending increases
B) Money supply decreases
C) Interest rates decrease
D) Inflation rises
Answer: B) Money supply decreases
50. Fiscal policy aims to control inflation by:

A) Modifying interest rates
B) Adjusting government spending and taxation
C) Changing the CRR
D) Setting price controls
Answer: B) Adjusting government spending and taxation