Test: Inflation - Class 10 MCQ

Raising the bank rate increases the cost of borrowing for commercial banks, which can help to reduce the overall money supply in the economy. This is a key monetary policy tool for combating inflation.

Fixed income groups, such as retirees, may struggle to maintain their living standards as inflation erodes their purchasing power. Their income does not adjust with rising prices, making it challenging to afford goods and services.

The primary goal of implementing price controls is to prevent price increases on essential goods and services, especially during periods of hyperinflation. This measure aims to protect consumers from rapid price hikes.

Supply chain disruptions can lead to shortages of essential inputs, driving up production costs. When businesses face higher costs due to these disruptions, they often pass those costs on to consumers, resulting in cost-push inflation.

Inflation decreases the purchasing power of money, meaning that consumers can buy fewer goods and services with the same amount of money compared to before inflation occurred. This change impacts real income.

Wage control aims to prevent wage increases that outpace productivity, which can contribute to inflation. By stabilizing wages, the government seeks to manage cost-push inflation effectively.

Implementing price controls is a non-monetary measure aimed at capping the prices of essential goods and services to prevent further inflation, especially in scenarios of hyperinflation.

Inflation can decrease the real value of savings, as the purchasing power of money diminishes over time. This effect discourages saving, as individuals feel their money will not retain its value.

Inflation, particularly hyperinflation, can lead to uncertainty in the economy, prompting businesses and individuals to hoard goods in anticipation of further price increases. This behavior can disrupt normal production and distribution.

Hyperinflation leads to rapid price increases, often exceeding 200% within a month. This extreme inflation undermines the currency's value, causing severe economic instability and uncertainty.

Hyperinflation is characterized by extreme price increases, often exceeding 200% per month. This rapid inflation can lead to severe economic and social consequences, including the collapse of the currency.

Rising wages can contribute to cost-push inflation as higher labor costs lead businesses to increase prices to maintain profit margins. This type of inflation occurs when production costs rise, not due to demand factors.

When government expenditure exceeds real output, it can lead to excess demand in the economy, contributing to inflationary pressures. This situation necessitates measures to reduce demand and stabilize prices.

Borrowers benefit from inflation because they repay their debts with money that has less purchasing power than when they borrowed it. This decrease in the real value of money means they effectively pay back less in real terms.

Creeping inflation refers to a gradual rise in prices, typically within the range of 2% to 2.5% per year. This slow increase is often considered manageable and can reflect a growing economy without significant negative impacts.

Increasing income taxes can help control inflation driven by private expenditures by reducing disposable income, which in turn decreases consumer demand. A well-designed tax policy can help lower overall demand in the economy.

During inflation, equity returns may increase due to higher profits resulting from rising prices. However, bondholders receive fixed interest payments, which do not adjust for inflation, leading to a decrease in real returns.

Rising production costs are related to cost-push inflation, not demand-pull inflation. Demand-pull inflation occurs when demand exceeds supply, often fueled by increased consumer spending and government expenditure.

Running inflation refers to a situation where inflation rates reach about 10% per annum, indicating a significant and concerning rise in prices, which may lead to more severe inflationary pressures if not controlled.

Raising the cash reserve ratio (CRR) limits the lending capacity of commercial banks, which reduces the amount of money circulating in the economy. This decrease in money supply can help control inflation.