Q1. Which of the following best explains demand-pull inflation?
A. Rise in prices due to increase in wages
B. Increase in prices due to higher indirect taxes
C. Increase in prices due to excess aggregate demand
D. Rise in prices due to currency depreciation
Correct Answer: C
Explanation: Demand-pull inflation occurs when aggregate demand exceeds available output.
Q2. Inflation caused by a sharp rise in crude oil prices is an example of:
A. Demand-pull inflation
B. Cost-push inflation
C. Structural inflation
D. Creeping inflation
Correct Answer: B
Explanation: Higher input costs raise production costs, leading to cost-push inflation.
Q3. Consider the following statements regarding core inflation:
- It excludes food and fuel prices.
- It reflects demand-side inflationary pressures.
- It is targeted by the RBI.
Which of the statements given above are correct?
A. 1 and 2 only
B. 1 and 2 only
C. 2 and 3 only
D. 1, 2 and 3
Correct Answer: A
Explanation: RBI targets headline CPI inflation, not core inflation.Core inflation is monitored but not the target.
Q4. A situation of high inflation combined with low economic growth and high unemployment is known as:
A. Reflation
B. Stagflation
C. Disinflation
D. Deflation
Correct Answer: B
Explanation: Stagflation presents a serious policy dilemma.
Q5. Reduction in the inflation rate from 8% to 5% without fall in prices is termed as:
A. Deflation
B. Reflation
C. Disinflation
D. Shrinkflation
Correct Answer: C
Explanation: Prices continue to rise, but at a slower pace.
