Which one of the following is likely to be the most inflationary in its effect

💥Mains Ready By December. Smash Mains & Smash PYQ Admissions Open

Talk to Mentor

Civilsdaily

2013

Economics, Inflation

Which one of the following is likely to be the most inflationary in its effect?

(a)

Repayment of public debt

(b)

Borrowing from the public to finance a budget deficit

(c)

Borrowing from banks to finance a budget deficit

(d)

Creating new money to finance a budget deficit

Correct Answer

(d)

Explanation

b and c option will lead to a decrease in the money supply in
market. Between a and d, d will have more inflationary effect than
a, as it will lead to an increase in total money supply in the market.

Microtheme: Inflation —
14 questions asked in Prelims in the past.

[2022] In India, which one of the following is responsible for maintaining price stability by controlling inflation ?
(a) Department of Consumer Affairs
(b) Expenditure Management Commission
(c) Financial Stability and Development Council
(d) Reserve Bank of India
- (a) Department of Consumer Affairs
- (b) Expenditure Management Commission
- (c) Financial Stability and Development Council
- (d) Reserve Bank of India
Correct Answer: (D) Reserve Bank of India
[2021] Consider the following statements:
Other things remaining unchanged, market demand for a good might increase if:
1.The price of its substitute increases.
2.The price of its complement increases.
3.The good is an inferior good, and the income of the consumers increases.
4. Its price falls.
Which of the above statements are correct?
- (a) 1 and 4 only
- (b) 2, 3, and 4
- (c) 1, 3, and 4
- (d) 1, 2, and 3
Correct Answer: (A) 1 and 4 only
[2021] Which one of the following is likely to be the most inflationary in its effects?
- (a) Repayment of public debt.
- (b) Borrowing from the public to finance a budget deficit.
- (c) Borrowing from the banks to finance a budget deficit.
- (d) Creation of new money to finance a budget deficit.
Correct Answer: (D) Creation of new money to finance a budget deficit.
[2021] With reference to the Indian economy, demand-pull inflation can be caused or increased by which of the following:
1.Expansionary policies
2.Fiscal stimulus
3.Inflation-indexing of wages
4.Higher purchasing power
5.Rising interest rates
Select the correct answer using the code given below:
- (a) 1, 2, and 4 only
- (b) 3, 4, and 5 only
- (c) 1, 2, 3, and 5 only
- (d) 1, 2, 3, 4, and 5
Correct Answer: (A) 1, 2, and 4 only
[2020] Consider the following statements:
1. The weightage of food in Consumer Price Index (CPI) is higher than that Wholesale
Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to
decide on changing the key policy rates.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 only
- (c) 3 only
- (d) 1, 2 and 3
Correct Answer: (A) 1 and 2 only
[2015] Which of the following brings out the ‘Consumer Price Index Number for Industrial workers’?
- (a) The Reserve Bank Of India
- (b) The Department of Economic Affairs
- (c) The Labour Bureau
- (d) The Department of Personnel and Training
Correct Answer: (C) The Labour Bureau
[2015] With reference to inflation in India, which of the following statements is correct?
- (a) Controlling the inflation in India is the responsibility of the Government of India only
- (b) The Reserve Bank of India has no role in controlling the inflation
- (c) Decreased money circulation helps in controlling the inflation
- (d) Increased money circulation helps in controlling the inflation
Correct Answer: (C) Decreased money circulation helps in controlling the inflation
[2013] Consider the following statements :
1. Inflation benefits the debtors.
2. Inflation benefits the bond-holders.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Correct Answer: (A) 1 only
[2013] A rise in general level of prices may be caused by
1. an increase in the money supply
2. a decrease in the aggregate level of output
3. an increase in the effective demand
Select the correct answer using the codes given below.
- (a) 1 only
- (b) 1 and 2 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Correct Answer: (D) 1, 2 and 3
[2013] Which one of the following is likely to be the most inflationary in its effect?
- (a) Repayment of public debt
- (b) Borrowing from the public to finance a budget deficit
- (c) Borrowing from banks to finance a budget deficit
- (d) Creating new money to finance a budget deficit
Correct Answer: (D) Creating new money to finance a budget deficit
[2011] A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?
- (a) It is the impact of drastic deficiency in supply due to failure of crops.
- (b) It is the impact of the surge in demand due to rapid economic growth.
- (c) It is the impact of the price levels of previous year on the calculation of inflation rate.
- (d) None of the statements (a), (b) and (c) given above is correct in this context.
Correct Answer: (C) It is the impact of the price levels of previous year on the calculation of inflation rate.
[2011] India has experienced persistent and high food inflation in the recent past. What could be the reasons?
1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3. The food supply chain has structural constraints.
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Correct Answer: (B) 2 and 3 only
[2010] With reference to India, consider the following Statements:
1. The Wholesale Price Index (WPI) in India is available on a monthly basis only
2. As compared to Consumer Price Index for Industrial Workers (CPI (IW)), the WPI gives less weight to food articles.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Correct Answer: (C) Both 1 and 2
[2010] Which one of the following statements is an appropriate description of deflation ?
- (a) It is a sudden fall in the value of a currency against other currencies
- (b) It is a pertinent recession in both the financial and real sectors of the economy
- (c) It is a persistent fall in the general price levels of goods and services
- (d) It is a fall in the rate of inflation over a period of time
Correct Answer: (C) It is a persistent fall in the general price levels of goods and services