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All questions of Price and Inflation for UPSC CSE Exam
Which of the following is also known as Jumping Inflation?
- a)Core Inflation
- b)Bottleneck Inflation
- c)Galloping Inflation
- d)Creeping Inflation
Correct answer is option 'C'. Can you explain this answer?
Which of the following is also known as Jumping Inflation?
a)
Core Inflation
b)
Bottleneck Inflation
c)
Galloping Inflation
d)
Creeping Inflation
|
Pooja Shah answered |
Gallopin Inflation is a type of inflation that occurs when the prices of goods and services increase at two-digit or three-digit rate per annum. Galloping inflation is also known as jumping inflation.
Consider the following statements.
1. The governments may take recourse to tighter monetary policy to cool down either the demand-pull or the cost-push inflations.
2. This is intended to increase the money supply in the economy.
Which of these statements is/are correct?
- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)None of them
Correct answer is option 'A'. Can you explain this answer?
Consider the following statements.
1. The governments may take recourse to tighter monetary policy to cool down either the demand-pull or the cost-push inflations.
2. This is intended to increase the money supply in the economy.
Which of these statements is/are correct?
a)
1 Only
b)
2 Only
c)
Both 1 and 2
d)
None of them
|
Pankaj Pillai answered |
Explanation:
Neither of the statements are correct.
1. Tighter monetary policy is actually intended to decrease the money supply in the economy, not increase it. This is because a decrease in money supply will lead to higher interest rates, which in turn will reduce borrowing and spending and ultimately reduce inflation.
2. The statement is incorrect because tighter monetary policy is intended to decrease the money supply, not increase it.
Therefore, the correct option is 'A' (None of them).
Neither of the statements are correct.
1. Tighter monetary policy is actually intended to decrease the money supply in the economy, not increase it. This is because a decrease in money supply will lead to higher interest rates, which in turn will reduce borrowing and spending and ultimately reduce inflation.
2. The statement is incorrect because tighter monetary policy is intended to decrease the money supply, not increase it.
Therefore, the correct option is 'A' (None of them).
Consider the following statements.1. India's official Housing Price Index (HPI) was launched in July 2007 in Mumbai.2. It was developed by the Indian home loans regulator, the National Housing Bank (NHB) the index is named NHB Residex.Which of these statements is/are incorrect?- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)None of them
Correct answer is option 'D'. Can you explain this answer?
Consider the following statements.
1. India's official Housing Price Index (HPI) was launched in July 2007 in Mumbai.
2. It was developed by the Indian home loans regulator, the National Housing Bank (NHB) the index is named NHB Residex.
Which of these statements is/are incorrect?
a)
1 Only
b)
2 Only
c)
Both 1 and 2
d)
None of them
|
Future Foundation Institute answered |
The NHB RESIDEX, launched in July 2007 by the National Housing Bank (NHB), is India's official Housing Price Index (HPI) tracking residential property price trends. Initially a pilot for five cities (Bangalore, Bhopal, Delhi, Kolkata, Mumbai) with 2007 as the base year, it was revamped in 2015. Now covering 50 cities (with plans for 100), it uses 2012-13 as the base year and tracks two indices: HPI@Assessment Prices (bank valuations) and HPI@Market Prices (quoted prices).
Which of the following are the economy traits of the cycle of recovery? 1. An upturn in aggregate demand which has to be accompanied by an increase in the level of production.2. Production process expands and new investments become attractive.3. Inflation also moves downward making borrowing cheaper for investors.Which of these statements is/are correct?- a) 1 and 2 Only
- b) 2 and 3 Only
- c) 1 and 3 Only
- d) All of them
Correct answer is option 'A'. Can you explain this answer?
Which of the following are the economy traits of the cycle of recovery?
1. An upturn in aggregate demand which has to be accompanied by an increase in the level of production.
2. Production process expands and new investments become attractive.
3. Inflation also moves downward making borrowing cheaper for investors.
Which of these statements is/are correct?
a)
1 and 2 Only
b)
2 and 3 Only
c)
1 and 3 Only
d)
All of them
|
Mohit Chakraborty answered |
The correct answer is option 'A': 1 and 2 Only.
Explanation:
1. An upturn in aggregate demand which has to be accompanied by an increase in the level of production:
During the cycle of recovery, one of the key economy traits is an upturn in aggregate demand. This means that consumers and businesses are willing to spend more on goods and services. As a result, there is an increase in the level of production to meet this higher demand. This can be seen in various sectors of the economy, such as manufacturing, services, and construction, where production activities expand to meet the increased demand.
2. Production process expands and new investments become attractive:
With the upturn in aggregate demand, businesses start to expand their production process. This expansion can include increasing the capacity of existing facilities, hiring more workers, and investing in new machinery and equipment. The expansion of production not only helps to meet the increased demand but also creates new job opportunities and stimulates economic growth. Additionally, new investments become attractive during this period as businesses see the potential for higher returns due to increased consumer spending.
3. Inflation also moves downward making borrowing cheaper for investors:
The statement that inflation moves downward during the cycle of recovery is not correct. Inflation is a general increase in prices over time, and during the recovery phase, it is more likely that inflation will increase rather than decrease. As the economy recovers, demand for goods and services increases, which can lead to upward pressure on prices. This can be seen in rising consumer prices and higher input costs for businesses.
Therefore, the correct answer is option 'A': 1 and 2 Only, as statement 3 is incorrect.
Explanation:
1. An upturn in aggregate demand which has to be accompanied by an increase in the level of production:
During the cycle of recovery, one of the key economy traits is an upturn in aggregate demand. This means that consumers and businesses are willing to spend more on goods and services. As a result, there is an increase in the level of production to meet this higher demand. This can be seen in various sectors of the economy, such as manufacturing, services, and construction, where production activities expand to meet the increased demand.
2. Production process expands and new investments become attractive:
With the upturn in aggregate demand, businesses start to expand their production process. This expansion can include increasing the capacity of existing facilities, hiring more workers, and investing in new machinery and equipment. The expansion of production not only helps to meet the increased demand but also creates new job opportunities and stimulates economic growth. Additionally, new investments become attractive during this period as businesses see the potential for higher returns due to increased consumer spending.
3. Inflation also moves downward making borrowing cheaper for investors:
The statement that inflation moves downward during the cycle of recovery is not correct. Inflation is a general increase in prices over time, and during the recovery phase, it is more likely that inflation will increase rather than decrease. As the economy recovers, demand for goods and services increases, which can lead to upward pressure on prices. This can be seen in rising consumer prices and higher input costs for businesses.
Therefore, the correct answer is option 'A': 1 and 2 Only, as statement 3 is incorrect.
Consider the following statements1. Inflation has no impact on the self-employed people in the short-run2. In the long run, inflation impacts self-employed individuals as it affects the overall economy.Which of these statements is/are correct?- a)1 Only
- b)Both 1 and 2
- c)2 Only
- d)None of them
Correct answer is option 'C'. Can you explain this answer?
Consider the following statements
1. Inflation has no impact on the self-employed people in the short-run
2. In the long run, inflation impacts self-employed individuals as it affects the overall economy.
Which of these statements is/are correct?
a)
1 Only
b)
Both 1 and 2
c)
2 Only
d)
None of them
|
Capstone Ias Learning answered |
- Statement 1: "Inflation does not affect self-employed individuals in the short run."
Incorrect. Inflation affects self-employed individuals in the short run, primarily through rising costs of raw materials, rent, transportation, and other expenses. If they are unable to immediately increase the prices of their goods or services, their real income declines. - Statement 2: "In the long run, inflation impacts self-employed individuals as it affects the overall economy."
Correct. Over time, inflation leads to changes in wages, purchasing power, and overall economic conditions. Higher inflation can reduce consumer demand, increase interest rates, and create economic instability, which ultimately impacts self-employed individuals as well.
Therefore,Correct Answer - Option C
Consider the following statements.
1. Real interest rate is always lower than the normal interest rate.
2. To neutralize the effects of inflation premium, the lender takes the recourse to decrease the nominal rate of interest.
Which of these statements is/are correct?
- a)None of them
- b)2 Only
- c)Both 1 and 2
- d)1 Only
Correct answer is option 'A'. Can you explain this answer?
Consider the following statements.
1. Real interest rate is always lower than the normal interest rate.
2. To neutralize the effects of inflation premium, the lender takes the recourse to decrease the nominal rate of interest.
Which of these statements is/are correct?
a)
None of them
b)
2 Only
c)
Both 1 and 2
d)
1 Only
|
|
Debanshi Desai answered |
Explanation:
Real interest rate and normal interest rate are two different concepts. Real interest rate is the nominal interest rate adjusted for inflation, while normal interest rate is the rate at which the demand for credit equals the supply of credit.
1. Real interest rate is always lower than the normal interest rate - False
Real interest rate can be higher or lower than the normal interest rate depending upon the inflation rate. If the inflation rate is high, the real interest rate will be lower than the normal interest rate, and vice versa.
For example, if the nominal interest rate is 10% and the inflation rate is 5%, the real interest rate will be 5%. However, if the inflation rate is 15%, the real interest rate will be -5%, which means the borrower is paying less in real terms than what he has borrowed.
2. To neutralize the effects of inflation premium, the lender takes the recourse to decrease the nominal rate of interest. - False
Inflation premium is the additional return that lenders demand to compensate for the loss in purchasing power due to inflation. To neutralize the effects of inflation premium, the lender can increase the nominal rate of interest, not decrease it.
For example, if the inflation rate is 5% and the lender wants to earn a real rate of return of 5%, he will charge a nominal rate of interest of 10%. This means that the borrower will pay an additional 5% as inflation premium.
Conclusion:
Both the statements given in the question are false. Real interest rate can be higher or lower than the normal interest rate depending upon the inflation rate. To neutralize the effects of inflation premium, the lender can increase the nominal rate of interest, not decrease it.
Real interest rate and normal interest rate are two different concepts. Real interest rate is the nominal interest rate adjusted for inflation, while normal interest rate is the rate at which the demand for credit equals the supply of credit.
1. Real interest rate is always lower than the normal interest rate - False
Real interest rate can be higher or lower than the normal interest rate depending upon the inflation rate. If the inflation rate is high, the real interest rate will be lower than the normal interest rate, and vice versa.
For example, if the nominal interest rate is 10% and the inflation rate is 5%, the real interest rate will be 5%. However, if the inflation rate is 15%, the real interest rate will be -5%, which means the borrower is paying less in real terms than what he has borrowed.
2. To neutralize the effects of inflation premium, the lender takes the recourse to decrease the nominal rate of interest. - False
Inflation premium is the additional return that lenders demand to compensate for the loss in purchasing power due to inflation. To neutralize the effects of inflation premium, the lender can increase the nominal rate of interest, not decrease it.
For example, if the inflation rate is 5% and the lender wants to earn a real rate of return of 5%, he will charge a nominal rate of interest of 10%. This means that the borrower will pay an additional 5% as inflation premium.
Conclusion:
Both the statements given in the question are false. Real interest rate can be higher or lower than the normal interest rate depending upon the inflation rate. To neutralize the effects of inflation premium, the lender can increase the nominal rate of interest, not decrease it.
Consider the following statements:Statement-I:
Recovery from a recession can lead to overheating in the economy, characterized by symptoms such as a downturn in aggregate demand, falling production levels, stagnant employment growth, voluntary labor cuts, the risk of depression, and low inflation rates.
Statement-II:
A growth recession is a situation where an economy grows so slowly that more jobs are lost than created, giving the feel of a recession despite positive GDP growth.
Which one of the following is correct in respect of the above statements?- a)Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
- b)Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
- c)Statement-I is correct, but Statement-II is incorrect
- d)Statement-I is incorrect, but Statement-II is correct
Correct answer is option 'D'. Can you explain this answer?
Consider the following statements:
Statement-I:
Recovery from a recession can lead to overheating in the economy, characterized by symptoms such as a downturn in aggregate demand, falling production levels, stagnant employment growth, voluntary labor cuts, the risk of depression, and low inflation rates.
Statement-II:
A growth recession is a situation where an economy grows so slowly that more jobs are lost than created, giving the feel of a recession despite positive GDP growth.
Which one of the following is correct in respect of the above statements?
Recovery from a recession can lead to overheating in the economy, characterized by symptoms such as a downturn in aggregate demand, falling production levels, stagnant employment growth, voluntary labor cuts, the risk of depression, and low inflation rates.
Statement-II:
A growth recession is a situation where an economy grows so slowly that more jobs are lost than created, giving the feel of a recession despite positive GDP growth.
Which one of the following is correct in respect of the above statements?
a)
Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
b)
Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
c)
Statement-I is correct, but Statement-II is incorrect
d)
Statement-I is incorrect, but Statement-II is correct
|
|
Aman Joshi answered |
Understanding the Statements
Statement-I describes a scenario of overheating in the economy, which is characterized by various negative symptoms, including downturns in aggregate demand and low inflation rates. However, the symptoms listed in Statement-I do not accurately represent the concept of economic overheating, which typically involves excessive demand leading to inflation, rather than falling production and stagnant employment.
Statement-II correctly defines a growth recession, indicating a situation where economic growth is so slow that job losses occur despite a positive GDP growth rate. This situation can indeed feel like a recession, as it signifies underlying economic weaknesses.
Analysis of the Statements
- Statement-I:
- Incorrectly describes overheating as it lists symptoms that align more with a recession rather than the excess demand seen in overheating scenarios.
- Symptoms like falling production levels and low inflation rates do not characterize an overheating economy.
- Statement-II:
- Correctly explains what a growth recession is.
- Highlights how slow growth can lead to job losses, even with positive GDP growth, which can create the perception of a recession.
Conclusion
Given this analysis, the correct option is:
- D: Statement-I is incorrect, but Statement-II is correct.
This understanding clarifies that while both statements discuss economic conditions, only Statement-II accurately describes a recognized economic concept, making Statement-I misleading in its context.
Statement-I describes a scenario of overheating in the economy, which is characterized by various negative symptoms, including downturns in aggregate demand and low inflation rates. However, the symptoms listed in Statement-I do not accurately represent the concept of economic overheating, which typically involves excessive demand leading to inflation, rather than falling production and stagnant employment.
Statement-II correctly defines a growth recession, indicating a situation where economic growth is so slow that job losses occur despite a positive GDP growth rate. This situation can indeed feel like a recession, as it signifies underlying economic weaknesses.
Analysis of the Statements
- Statement-I:
- Incorrectly describes overheating as it lists symptoms that align more with a recession rather than the excess demand seen in overheating scenarios.
- Symptoms like falling production levels and low inflation rates do not characterize an overheating economy.
- Statement-II:
- Correctly explains what a growth recession is.
- Highlights how slow growth can lead to job losses, even with positive GDP growth, which can create the perception of a recession.
Conclusion
Given this analysis, the correct option is:
- D: Statement-I is incorrect, but Statement-II is correct.
This understanding clarifies that while both statements discuss economic conditions, only Statement-II accurately describes a recognized economic concept, making Statement-I misleading in its context.
Which of the following are the traits of depression? 1. An extremely low aggregate demand in the economy causes activities to decelerate.2. Inflation is comparatively higher.3. The employment avenues start shrinking forcing unemployment rate to grow fast.Which of these statements is/are correct?- a) 1 and 2 Only
- b) 2 and 3 Only
- c) 1 and 3 Only
- d) All of them
Correct answer is option 'C'. Can you explain this answer?
Which of the following are the traits of depression?
1. An extremely low aggregate demand in the economy causes activities to decelerate.
2. Inflation is comparatively higher.
3. The employment avenues start shrinking forcing unemployment rate to grow fast.
Which of these statements is/are correct?
a)
1 and 2 Only
b)
2 and 3 Only
c)
1 and 3 Only
d)
All of them
|
|
Devanshi Reddy answered |
The major traits of depression could be as given below.
- (i) an extremely low aggregate demand in the economy causes activities to decelerate;
- (ii) the inflation being comparatively lower;
- (iii) the employment avenues start shrinking forcing unemployment rate to grow fast;
- (iv) to keep the business going, production houses go for forced labour-cuts or retrenchment (to cut down production cost and be competitive in the market,) etc.
Consider the following statements about the non-accelerating Inflation rate of unemployment.1. The NAIRU is that rate of unemployment which is consistent with a constant rate of inflation.2. The upward and downward forces on price and wage neutralise each other and there is no tendency of change in the rate of inflation.Which of these statements is/are correct?- a) 1 Only
- b) 2 Only
- c) Both 1 and 2
- d) None of them
Correct answer is option 'C'. Can you explain this answer?
Consider the following statements about the non-accelerating Inflation rate of unemployment.
1. The NAIRU is that rate of unemployment which is consistent with a constant rate of inflation.
2. The upward and downward forces on price and wage neutralise each other and there is no tendency of change in the rate of inflation.
Which of these statements is/are correct?
a)
1 Only
b)
2 Only
c)
Both 1 and 2
d)
None of them
|
Athira Kumar answered |
Explanation:
Non-Accelerating Inflation Rate of Unemployment (NAIRU) is the rate of unemployment at which the rate of inflation remains constant.
Statement 1: The NAIRU is that rate of unemployment which is consistent with a constant rate of inflation.
This statement is correct. NAIRU is the rate of unemployment at which the rate of inflation remains constant. It represents the equilibrium level of unemployment in an economy. When the actual rate of unemployment is below the NAIRU, the economy is operating at a level of output above its potential and there is upward pressure on prices. On the other hand, when the actual rate of unemployment is above the NAIRU, the economy is operating at a level of output below its potential and there is downward pressure on prices. Thus, the NAIRU represents the rate of unemployment at which the forces of supply and demand in the labor market are in balance and there is no upward or downward pressure on prices.
Statement 2: The upward and downward forces on price and wage neutralize each other and there is no tendency of change in the rate of inflation.
This statement is also correct. The NAIRU represents the equilibrium level of unemployment in an economy, where the upward and downward forces on prices and wages are in balance. At this level of unemployment, there is no tendency for the rate of inflation to change. If the actual rate of unemployment is above the NAIRU, there is downward pressure on prices and wages, which helps to bring the rate of inflation down. Conversely, if the actual rate of unemployment is below the NAIRU, there is upward pressure on prices and wages, which puts upward pressure on the rate of inflation. Thus, the NAIRU represents the level of unemployment at which there is no tendency for the rate of inflation to change.
Conclusion:
Both the statements are correct. The NAIRU represents the rate of unemployment at which the rate of inflation remains constant, and at this level of unemployment, the upward and downward forces on prices and wages are in balance, which neutralizes each other, and there is no tendency for the rate of inflation to change.
Non-Accelerating Inflation Rate of Unemployment (NAIRU) is the rate of unemployment at which the rate of inflation remains constant.
Statement 1: The NAIRU is that rate of unemployment which is consistent with a constant rate of inflation.
This statement is correct. NAIRU is the rate of unemployment at which the rate of inflation remains constant. It represents the equilibrium level of unemployment in an economy. When the actual rate of unemployment is below the NAIRU, the economy is operating at a level of output above its potential and there is upward pressure on prices. On the other hand, when the actual rate of unemployment is above the NAIRU, the economy is operating at a level of output below its potential and there is downward pressure on prices. Thus, the NAIRU represents the rate of unemployment at which the forces of supply and demand in the labor market are in balance and there is no upward or downward pressure on prices.
Statement 2: The upward and downward forces on price and wage neutralize each other and there is no tendency of change in the rate of inflation.
This statement is also correct. The NAIRU represents the equilibrium level of unemployment in an economy, where the upward and downward forces on prices and wages are in balance. At this level of unemployment, there is no tendency for the rate of inflation to change. If the actual rate of unemployment is above the NAIRU, there is downward pressure on prices and wages, which helps to bring the rate of inflation down. Conversely, if the actual rate of unemployment is below the NAIRU, there is upward pressure on prices and wages, which puts upward pressure on the rate of inflation. Thus, the NAIRU represents the level of unemployment at which there is no tendency for the rate of inflation to change.
Conclusion:
Both the statements are correct. The NAIRU represents the rate of unemployment at which the rate of inflation remains constant, and at this level of unemployment, the upward and downward forces on prices and wages are in balance, which neutralizes each other, and there is no tendency for the rate of inflation to change.
Which of the following types of inflation is ‘large and accelerating’?- a)Creeping inflation
- b)Galloping inflation
- c)None of these
- d)Hyperinflation
Correct answer is option 'D'. Can you explain this answer?
Which of the following types of inflation is ‘large and accelerating’?
a)
Creeping inflation
b)
Galloping inflation
c)
None of these
d)
Hyperinflation
|
|
Anjana Sharma answered |
Missing from the question? Please provide the options for me to determine which type of inflation is missing.
What is the effect of inflation on the tax structure of the economy? 1. Taxpayers suffer while paying there direct and indirect taxes2. On the other hand, the government gets the benefit of inflation on the tax collectionWhich of these statements is/are correct?- a) 1 Only
- b) 2 Only
- c) Both 1 and 2
- d) None of them
Correct answer is option 'A'. Can you explain this answer?
What is the effect of inflation on the tax structure of the economy?
1. Taxpayers suffer while paying there direct and indirect taxes
2. On the other hand, the government gets the benefit of inflation on the tax collection
Which of these statements is/are correct?
a)
1 Only
b)
2 Only
c)
Both 1 and 2
d)
None of them
|
Harshad Nambiar answered |
Inflation refers to the increase in the prices of goods and services in an economy over time. This increase in prices affects the tax structure of the economy in the following ways:
1. Taxpayers suffer while paying there direct and indirect taxes:
As the prices of goods and services increase due to inflation, the purchasing power of the taxpayers decreases. This means that taxpayers have to pay more taxes to the government but their real income remains the same or decreases. This puts a burden on the taxpayers and reduces their disposable income.
2. On the other hand, the government gets the benefit of inflation on the tax collection:
The government collects taxes in nominal terms, which means that the tax rates are fixed in nominal terms and not adjusted for inflation. When inflation occurs, the prices of goods and services increase, and the government collects more taxes in nominal terms. This means that the government benefits from inflation as it collects more taxes without increasing the tax rates.
Therefore, the correct answer is option 'A', which states that taxpayers suffer while paying their direct and indirect taxes due to inflation.
1. Taxpayers suffer while paying there direct and indirect taxes:
As the prices of goods and services increase due to inflation, the purchasing power of the taxpayers decreases. This means that taxpayers have to pay more taxes to the government but their real income remains the same or decreases. This puts a burden on the taxpayers and reduces their disposable income.
2. On the other hand, the government gets the benefit of inflation on the tax collection:
The government collects taxes in nominal terms, which means that the tax rates are fixed in nominal terms and not adjusted for inflation. When inflation occurs, the prices of goods and services increase, and the government collects more taxes in nominal terms. This means that the government benefits from inflation as it collects more taxes without increasing the tax rates.
Therefore, the correct answer is option 'A', which states that taxpayers suffer while paying their direct and indirect taxes due to inflation.
What is the effect of inflation on the expenditure?
1. Increased prices make our consumption levels fall as goods and services we buy get costlier.
2. Inflation makes investment expenditure decrease as a result of the increased cost of money.
Which of these statements is/are correct?
- a)1 and 2 Only
- b)1 Only
- c)2 Only
- d)None of these
Correct answer is option 'A'. Can you explain this answer?
What is the effect of inflation on the expenditure?
1. Increased prices make our consumption levels fall as goods and services we buy get costlier.
2. Inflation makes investment expenditure decrease as a result of the increased cost of money.
Which of these statements is/are correct?
a)
1 and 2 Only
b)
1 Only
c)
2 Only
d)
None of these
|
|
Aditya Kumar answered |
Both statements are correct.
-
When inflation occurs, the prices of goods and services increase, and people need to spend more money to buy the same quantity of goods and services as before. This means that the purchasing power of their income decreases, which ultimately leads to a decrease in consumption levels.
-
Inflation also increases the cost of borrowing money, which means that the interest rates on loans increase. As a result, people and businesses tend to decrease their investment expenditure as the cost of borrowing money becomes too high.
Therefore, both statements correctly describe the effects of inflation on expenditure.
Consider the following statements. 1. Deflation is the general level of prices is falling over some time.2. Disinflation means a reduction in the level of national income and output, unlike the deflation.Which of these statements is/are correct?- a) 1 Only
- b) 2 Only
- c) Both 1 and 2
- d) None of them
Correct answer is option 'A'. Can you explain this answer?
Consider the following statements.
1. Deflation is the general level of prices is falling over some time.
2. Disinflation means a reduction in the level of national income and output, unlike the deflation.
Which of these statements is/are correct?
a)
1 Only
b)
2 Only
c)
Both 1 and 2
d)
None of them
|
Sameer Desai answered |
Deflation and Disinflation:
Deflation is a decrease in the general price level of goods and services in an economy over some time. It is the opposite of inflation. In other words, deflation means that the value of money is increasing, and therefore, prices are decreasing.
Disinflation, on the other hand, means a reduction in the rate of inflation. It is not the same as deflation because prices are still rising, just at a slower rate.
Explanation:
The given statements are:
1. Deflation is the general level of prices is falling over some time.
2. Disinflation means a reduction in the level of national income and output, unlike the deflation.
Statement 1 is correct. Deflation is a situation where the general level of prices is falling over some time. This can happen due to various reasons, such as a decrease in demand, an increase in supply, or a decrease in the money supply.
However, statement 2 is incorrect. Disinflation is a situation where the rate of inflation is decreasing, but the general level of prices is still rising. It does not mean a reduction in the level of national income and output.
Conclusion:
Thus, the correct answer is option 'A' - 1 Only. Deflation is the situation where the general level of prices is falling over some time, while disinflation is a situation where the rate of inflation is decreasing, but the general level of prices is still rising.
Deflation is a decrease in the general price level of goods and services in an economy over some time. It is the opposite of inflation. In other words, deflation means that the value of money is increasing, and therefore, prices are decreasing.
Disinflation, on the other hand, means a reduction in the rate of inflation. It is not the same as deflation because prices are still rising, just at a slower rate.
Explanation:
The given statements are:
1. Deflation is the general level of prices is falling over some time.
2. Disinflation means a reduction in the level of national income and output, unlike the deflation.
Statement 1 is correct. Deflation is a situation where the general level of prices is falling over some time. This can happen due to various reasons, such as a decrease in demand, an increase in supply, or a decrease in the money supply.
However, statement 2 is incorrect. Disinflation is a situation where the rate of inflation is decreasing, but the general level of prices is still rising. It does not mean a reduction in the level of national income and output.
Conclusion:
Thus, the correct answer is option 'A' - 1 Only. Deflation is the situation where the general level of prices is falling over some time, while disinflation is a situation where the rate of inflation is decreasing, but the general level of prices is still rising.
Consider the following statements.
1. Rising inflation indicates rising aggregate demand and indicates comparatively lower supply and higher purchasing capacity among the consumers
2. Higher inflation suggests the producers to increase their production level as it is generally considered as an Inflation of higher demand in the economy
Which of these statements is/are incorrect?
- a)1 Only
- b)2 Only
- c)None of them
- d)Both 1 and 2
Correct answer is option 'D'. Can you explain this answer?
Consider the following statements.
1. Rising inflation indicates rising aggregate demand and indicates comparatively lower supply and higher purchasing capacity among the consumers
2. Higher inflation suggests the producers to increase their production level as it is generally considered as an Inflation of higher demand in the economy
Which of these statements is/are incorrect?
a)
1 Only
b)
2 Only
c)
None of them
d)
Both 1 and 2
|
Anjali Mehta answered |
- The first statement says that rising inflation indicates rising aggregate demand, which suggests a comparatively lower supply and higher purchasing capacity among consumers. This is False. Rising inflation could indicate rising demand, but it doesn't necessarily mean there is a higher purchasing capacity among consumers. Inflation can erode purchasing power if wages do not increase at the same rate as prices. Additionally, inflation can also be caused by factors other than aggregate demand, such as increased costs of production or supply chain disruptions.
- The second statement suggests that higher inflation prompts producers to increase their production level as it is generally considered a sign of higher demand. This is false; producers might increase production if they perceive inflation as a sign of increased demand. However, if inflation is caused by supply-side factors (like increased costs of raw materials), higher production levels may not be feasible or profitable. Furthermore, inflation could also be a result of too much money chasing too few goods, which doesn't necessarily mean that demand has increased in real terms — it could just mean that the money supply has increased.
Consider the following statements. 1. For the monetarists, a particular level of money supply for a particular level of production is healthy for an economy2. Extra creation of money over the same level of production causes inflation3. Monetarists accepted this Keynesian theory of inflation.Which of these statements is/are correct?- a) 1 and 2 Only
- b) 2 and 3 Only
- c) 1 and 3 Only
- d) All of them
Correct answer is option 'A'. Can you explain this answer?
Consider the following statements.
1. For the monetarists, a particular level of money supply for a particular level of production is healthy for an economy
2. Extra creation of money over the same level of production causes inflation
3. Monetarists accepted this Keynesian theory of inflation.
Which of these statements is/are correct?
a)
1 and 2 Only
b)
2 and 3 Only
c)
1 and 3 Only
d)
All of them
|
Vijay Kumar answered |
- For the monetarists, a particular level of money supply for a particular level of production is healthy for an economy.
- Extra creation of money over the same level of production causes inflation.
- They suggested proper monetary policy (money supply, interest rates, the printing of currencies, public borrowing etc.), to check situations of inflationary pressure on the economy.
- Monetarists rejected the Keynesian theory of inflation.
Consider the following statements about GDP Deflator. 1. This is the ratio between GDP at Current Price and GDP at Constant Prices2. If GDP at Current Prices is equal to the GDP at Constant Prices, GDP deflator will be 1, implying no change in the price level3. GDP deflator is acclaimed as a better measure of price behaviour because it covers all goods and services produced in the countryWhich of these statements is/are correct?- a) 1 and 2 Only
- b) 2 and 3 Only
- c) 1 and 3 Only
- d) All of them
Correct answer is option 'D'. Can you explain this answer?
Consider the following statements about GDP Deflator.
1. This is the ratio between GDP at Current Price and GDP at Constant Prices
2. If GDP at Current Prices is equal to the GDP at Constant Prices, GDP deflator will be 1, implying no change in the price level
3. GDP deflator is acclaimed as a better measure of price behaviour because it covers all goods and services produced in the country
Which of these statements is/are correct?
a)
1 and 2 Only
b)
2 and 3 Only
c)
1 and 3 Only
d)
All of them
|
|
Deepa Iyer answered |
- This is the ratio between GDP at Current Price and GDP at Constant Prices.
- If GDP at Current Prices is equal to the GDP at Constant Prices, GDP deflator will be 1, implying no change in the price level. If GDP deflator is found to be 2, it implies a rise in price level by a factor of 2.
- GDP deflator is acclaimed as a better measure of price behaviour because it covers all goods and services produced in the country (because the weight of services has not been equitably accounted in the Indian "headline inflation', i.e., inflation at WPI).
Consider the following statements about Phillips Curve
1. It is a graphic curve which advocates a relationship between inflation and unemployment in an economy.
2. The curve suggests that higher the inflation, lower the unemployment and lower the inflation, higher the unemployment.
Which of these statements is/are correct?
- a)Both 1 and 2
- b)2 Only
- c)1 Only
- d)None of them
Correct answer is option 'A'. Can you explain this answer?
Consider the following statements about Phillips Curve
1. It is a graphic curve which advocates a relationship between inflation and unemployment in an economy.
2. The curve suggests that higher the inflation, lower the unemployment and lower the inflation, higher the unemployment.
Which of these statements is/are correct?
a)
Both 1 and 2
b)
2 Only
c)
1 Only
d)
None of them
|
|
Pooja Shah answered |
-
It is a graphic curve which advocates a relationship between inflation and unemployment in an economy.
-
As per the curve, there is a 'trade-off between inflation and unemployment, i.e., an inverse relationship between them.
-
The curve suggests that lower the inflation, higher the unemployment and higher the inflation, lower the unemployment.
Consider the following statements. 1. The long term measure is to cool down Inflation is to make money costlier.2. The short term is to increase the Bank Rate or Repo Rate.3. Other short term is measure is to increase production.Which of these statements is/are correct?- a) 2 only
- b) 3 Only
- c) 1 Only
- d) 1 and 3 Only
Correct answer is option 'A'. Can you explain this answer?
Consider the following statements.
1. The long term measure is to cool down Inflation is to make money costlier.
2. The short term is to increase the Bank Rate or Repo Rate.
3. Other short term is measure is to increase production.
Which of these statements is/are correct?
a)
2 only
b)
3 Only
c)
1 Only
d)
1 and 3 Only
|
Meera Singh answered |
- The governments may take recourse to tighter monetary policy to cool down either the demand-pull or the cost-push inflations.
- This is intended to cut down the money supply in the economy by siphoning out the extra money (as RBI increases the Cash Reserve Ratio of banks in India) from the economy and by making money costlier (as RBI increases the Bank Rate or Repo Rate in India) This is a short-term measure.
- In the long-run, the best way is to increase production with the help of the best production practices.
Which of the following is the definition of inflation? 1. Rise in the general level of prices2. Sustained rise in the general level of prices3. Persistent increases in the general level of pricesWhich of these statements is/are correct?- a) 1 and 2 Only
- b) 2 Only
- c) 3 Only
- d) All of them
Correct answer is option 'D'. Can you explain this answer?
Which of the following is the definition of inflation?
1. Rise in the general level of prices
2. Sustained rise in the general level of prices
3. Persistent increases in the general level of prices
Which of these statements is/are correct?
a)
1 and 2 Only
b)
2 Only
c)
3 Only
d)
All of them
|
|
Pooja Choudhury answered |
These are some of the most common academic definitions of inflation.
- A rise in the general level of prices;
- a sustained rise in the general level of prices;
- persistent increases in the general level of prices;
- an increase in the general level of prices in an economy that is sustained over time;
- rising prices across the boards—is inflation.
Which of the following is Demand-Pull Inflation:
- a)According to Keynesian it is that the demand increases over the same level of supply, or the supply decreases with the same level of demand.
- b)According to monetarists, it is the creation of extra purchasing power to the consumer over the same level of production.
- c)Neither of them
- d)Both of them
Correct answer is option 'D'. Can you explain this answer?
Which of the following is Demand-Pull Inflation:
a)
According to Keynesian it is that the demand increases over the same level of supply, or the supply decreases with the same level of demand.
b)
According to monetarists, it is the creation of extra purchasing power to the consumer over the same level of production.
c)
Neither of them
d)
Both of them
|
|
Meera Kapoor answered |
-
A mismatch between demand and supply pulls up prices.
-
Either the demand increases over the same level of supply, or the supply decreases with the same level of demand and thus the situation of demand-pull inflation arises.
-
This was a Keynesian idea. The Keynesian School suggests cuts in spending as the way of tackling excess demand mainly by increasing taxes and reducing government expenditure.
-
Monetarists view Demand-pull inflation as the creation of extra purchasing power to the consumer over the same level of production.
-
This is the type of creating extra money (either by the printing or public borrowing) without equivalent creation in production/supply i.e. too much money chasing too little output.
Chapter doubts & questions for Price and Inflation - Complete Indian Economy for UPSC in 15 Weeks 2025 is part of UPSC CSE exam preparation. The chapters have been prepared according to the UPSC CSE exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for UPSC CSE 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.
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