1. Inflation refers to:
A) Continuous rise in prices of all goods and services
B) Fall in prices of essential commodities
C) Rise in money supply only
D) Rise in production of goods
Answer: A
Explanation: Inflation = sustained rise in general price level over time.
2. Which of the following is NOT a type of inflation?
A) Creeping inflation
B) Walking inflation
C) Running inflation
D) Falling inflation
Answer: D
Explanation: Falling inflation is called deflation, not a type of inflation.
3. Creeping inflation refers to price rise of:
A) Less than 3% per year
B) 3–10% per year
C) 10–20% per year
D) More than 20% per year
Answer: A
Explanation: Creeping inflation = mild inflation (<3%).
4. Walking inflation refers to price rise of:
A) < 3%
B) 3–10%
C) 10–20%
D) > 20%
Answer: B
Explanation: Walking (moderate) inflation = 3–10% annually.
5. Running inflation refers to price rise of:
A) 10–20%
B) > 50%
C) < 3%
D) 3–10%
Answer: A
Explanation: Running inflation = 10–20% annual rise.
6. Galloping or Hyperinflation refers to:
A) Mild price rise
B) Sudden fall in prices
C) Extremely high price rise (> 50% annually)
D) Negative inflation
Answer: C
Explanation: Hyperinflation = extreme inflation (50%+ per year, often per month in history).
7. Deflation means:
A) Increase in money supply
B) Continuous fall in general price level
C) Zero inflation
D) Mild inflation
Answer: B
Explanation: Deflation = persistent fall in prices.
8. Disinflation refers to:
A) Negative inflation
B) Fall in rate of inflation, but inflation still positive
C) Rapid increase in prices
D) Hyperinflation
Answer: B
Explanation: Disinflation = slowdown in inflation rate (e.g., 8% → 5%).
9. Stagflation means:
A) Inflation + High growth
B) Inflation + Unemployment + Stagnation
C) Deflation + High growth
D) Only inflation without growth
Answer: B
Explanation: Stagflation = stagnant growth + inflation + unemployment.
10. Reflation refers to:
A) Inflation with depression
B) Policy to revive economy with mild inflation
C) Deflationary policy
D) High inflation during war
Answer: B
Explanation: Reflation = deliberate govt policy to raise prices moderately to overcome deflation.
11. Core inflation excludes:
A) Food and fuel prices
B) Manufactured goods
C) Taxes
D) Services
Answer: A
Explanation: Core inflation = headline inflation excluding food & energy (volatile items).
12. Headline inflation includes:
A) Only core goods
B) All items in CPI including food & fuel
C) Only wholesale goods
D) Only services
Answer: B
Explanation: Headline inflation = full CPI basket.
13. Imported inflation is caused by:
A) High domestic demand
B) High wages
C) Rise in import prices (oil, raw materials)
D) High money supply
Answer: C
Explanation: Imported inflation = inflation transmitted via higher import costs.
14. Structural inflation is common in:
A) Developed economies
B) Developing economies
C) Both equally
D) Only agricultural economies
Answer: B
Explanation: Structural inflation arises due to supply rigidities in developing countries.
15. Which of the following is an inflationary gap?
A) Excess supply over demand
B) Excess demand over supply at full employment
C) Excess imports over exports
D) Excess saving over investment
Answer: B
Explanation: Inflationary gap = excess demand at full employment.
16. Demand-pull inflation is caused by:
A) Increase in production cost
B) Increase in demand for goods & services
C) Decrease in money supply
D) Increase in unemployment
Answer: B
Explanation: Demand-pull inflation = too much money chasing too few goods.
17. Cost-push inflation is caused by:
A) Rise in wages, raw materials, fuel
B) Excess demand
C) Increased government spending
D) Higher exports
Answer: A
Explanation: Cost-push inflation arises due to rising production costs.
18. Built-in inflation is also called:
A) Demand-pull inflation
B) Cost-push inflation
C) Wage-price spiral inflation
D) Deflation
Answer: C
Explanation: Built-in inflation = wage–price spiral.
19. Which of the following groups suffers most during inflation?
A) Debtors
B) Creditors
C) Businessmen
D) Farmers
Answer: B
Explanation: Creditors lose as money repaid has lower value.
20. Which of the following benefits during inflation?
A) Creditors
B) Debtors
C) Fixed income groups
D) Government servants
Answer: B
Explanation: Debtors gain → repay loans with cheaper money.
21. Inflation reduces the purchasing power of:
A) Money
B) Gold
C) Land
D) Shares
Answer: A
Explanation: Inflation erodes value of money.
22. Inflation redistributes income in favor of:
A) Wage earners
B) Fixed income groups
C) Debtors & business class
D) Salaried people
Answer: C
Explanation: Inflation helps debtors & businessmen, hurts fixed-income earners.
23. Creeping inflation is sometimes considered:
A) Dangerous
B) Beneficial for growth
C) Deflationary
D) Hyperinflation
Answer: B
Explanation: Mild inflation may stimulate investment.
24. Which of the following is not an effect of inflation?
A) Income redistribution
B) Balance of payment problems
C) Fall in purchasing power
D) Decrease in money supply
Answer: D
Explanation: Inflation is linked with increased money supply, not decrease.
25. Which of the following describes “Hyperinflation” correctly?
A) 2–3% rise annually
B) 20–30% rise annually
C) Extremely rapid rise in prices (often per month)
D) Zero inflation
Answer: C
Explanation: Hyperinflation = prices spiral out of control, often >50% per month (e.g., Germany 1920s, Zimbabwe 2000s).
26. According to Quantity Theory of Money (Fisher’s equation), inflation occurs when:
A) Money supply increases faster than output
B) Money supply decreases
C) Output increases faster than money supply
D) Velocity of money decreases
Answer: A
Explanation: Fisher’s equation (MV = PT) → if money supply rises faster than goods, prices increase.
27. Keynes believed inflation arises mainly due to:
A) Excess money supply
B) Excess aggregate demand beyond full employment
C) Excess production
D) High imports
Answer: B
Explanation: Keynes: inflation begins when aggregate demand > aggregate supply at full employment.
28. Demand-pull inflation is also called:
A) Cost inflation
B) Excess demand inflation
C) Stagflation
D) Wage-price inflation
Answer: B
Explanation: Demand-pull = caused by excess demand.
29. Cost-push inflation arises due to:
A) High money supply
B) High government spending
C) Rising wages, fuel costs, raw materials
D) High exports
Answer: C
Explanation: Production costs ↑ → producers raise prices.
30. Wage-price spiral is an example of:
A) Demand-pull inflation
B) Cost-push inflation
C) Built-in inflation
D) Deflation
Answer: C
Explanation: Wage hikes increase costs → prices rise → further wage demands.
31. Which of the following can trigger inflation?
A) Increase in government expenditure
B) Increase in money supply
C) Increase in exports
D) All of the above
Answer: D
Explanation: All can raise aggregate demand, fueling inflation.
32. Which is a monetary cause of inflation?
A) Increase in wages
B) Deficit financing
C) Supply bottlenecks
D) Natural calamities
Answer: B
Explanation: Printing money to finance deficits raises money supply → inflation.
33. Which is a real cause of inflation?
A) Increase in money supply
B) Shortage of goods due to drought
C) Expansion of bank credit
D) Deficit financing
Answer: B
Explanation: Real causes = supply-side shortages.
34. According to monetarists, inflation is always and everywhere:
A) A fiscal phenomenon
B) A real phenomenon
C) A monetary phenomenon
D) A social phenomenon
Answer: C
Explanation: Milton Friedman: “Inflation is always a monetary phenomenon.”
35. Structural inflation is explained by:
A) Monetarists
B) Keynesians
C) Development economists
D) Classical economists
Answer: C
Explanation: Structuralists link inflation in developing countries to supply rigidities.
36. Deficit financing by government leads to inflation because:
A) It reduces demand
B) It increases supply
C) It increases money supply without corresponding output
D) It reduces wages
Answer: C
Explanation: Printing currency raises demand > supply.
37. Inflationary expectations among people may cause:
A) Deflation
B) Fall in demand
C) Self-fulfilling inflation
D) Hyperinflation only
Answer: C
Explanation: Expectation of rising prices → people buy more now → prices actually rise.
38. Which of the following is an external cause of inflation?
A) Bad monsoon
B) Global oil price rise
C) Higher wages
D) Deficit financing
Answer: B
Explanation: Imported inflation = external factor.
39. Cost-push inflation is associated with:
A) Excess demand
B) Supply shocks
C) High investment
D) Deflation
Answer: B
Explanation: Supply shocks (oil, raw materials) → cost-push inflation.
40. Which of the following is an example of demand-pull inflation?
A) Sudden wage increase
B) Oil price shock
C) Higher government expenditure on infrastructure
D) Drought
Answer: C
Explanation: More govt spending → demand ↑ → demand-pull inflation.
41. Inflation due to hoarding and black marketing is:
A) Demand-pull inflation
B) Cost-push inflation
C) Structural inflation
D) Reflation
Answer: B
Explanation: Hoarding reduces supply → price rise (cost-push).
42. Which type of inflation occurs first in developing economies?
A) Demand-pull inflation
B) Structural inflation
C) Cost-push inflation
D) Reflation
Answer: B
Explanation: Supply bottlenecks (agriculture, infrastructure) → structural inflation.
43. When money supply grows faster than real output, it causes:
A) Stagflation
B) Inflation
C) Deflation
D) Recession
Answer: B
Explanation: Excess liquidity leads to inflationary pressure.
44. “Too much money chasing too few goods” refers to:
A) Cost-push inflation
B) Demand-pull inflation
C) Stagflation
D) Deflation
Answer: B
Explanation: This phrase defines demand-pull inflation.
45. Which of the following can reduce inflationary pressure?
A) Increase in subsidies
B) Fall in government spending
C) Increase in money supply
D) Deficit financing
Answer: B
Explanation: Reducing govt expenditure reduces aggregate demand.
46. Which theory of inflation focuses on supply rigidities?
A) Monetarist theory
B) Keynesian theory
C) Structuralist theory
D) Classical theory
Answer: C
Explanation: Structuralist theory → bottlenecks in agriculture/industry in developing nations.
47. According to Keynes, mild inflation is:
A) Always harmful
B) Always beneficial
C) Useful for stimulating growth
D) Irrelevant
Answer: C
Explanation: Keynes: mild inflation encourages investment & growth.
48. Which of the following is a fiscal cause of inflation?
A) Increase in bank credit
B) Increase in indirect taxes
C) Fall in imports
D) Increase in velocity of money
Answer: B
Explanation: Higher indirect taxes → higher costs → inflation.
49. Inflationary gap is defined as:
A) Excess of aggregate demand over aggregate supply at full employment
B) Excess of aggregate supply over aggregate demand
C) Excess imports over exports
D) Excess savings over investment
Answer: A
Explanation: Inflationary gap = demand > supply at full employment.
50. Which of the following combinations best explains stagflation?
A) Inflation + Rising output
B) Inflation + Unemployment + Stagnation
C) Inflation + High growth
D) Inflation + Deflation
Answer: B
Explanation: Stagflation = rising prices + unemployment + stagnant growth.
51. Which of the following is the most common measure of inflation in India (official)?
A) GDP Deflator
B) CPI (Consumer Price Index)
C) WPI (Wholesale Price Index)
D) Cost of Living Index
Answer: B
Explanation: Since 2011, CPI is the official measure of inflation in India.
52. WPI inflation in India is published by:
A) Ministry of Commerce & Industry
B) Ministry of Finance
C) RBI
D) NSO
Answer: A
Explanation: Office of the Economic Adviser, Ministry of Commerce & Industry, publishes WPI.
53. CPI in India is compiled by:
A) RBI
B) Ministry of Finance
C) National Statistical Office (NSO)
D) Planning Commission
Answer: C
Explanation: NSO under Ministry of Statistics & Programme Implementation compiles CPI.
54. GDP deflator is calculated as:
A) (Real GDP ÷ Nominal GDP) × 100
B) (Nominal GDP ÷ Real GDP) × 100
C) (GDP – NNP) × 100
D) (CPI ÷ WPI) × 100
Answer: B
Explanation: GDP deflator = (Nominal GDP ÷ Real GDP) × 100.
55. Which inflation index covers both goods & services?
A) CPI
B) WPI
C) GDP deflator
D) Both A and C
Answer: D
Explanation: CPI & GDP deflator include goods and services, WPI covers only goods.
56. Base year of WPI in India (as of 2023) is:
A) 2004–05
B) 2011–12
C) 2017–18
D) 2019–20
Answer: B
Explanation: Current WPI base year = 2011–12.
57. Which is a broader measure of inflation?
A) CPI
B) WPI
C) GDP deflator
D) Cost of Living Index
Answer: C
Explanation: GDP deflator covers all goods and services in GDP, hence broader.
58. Which price index reflects cost of living most accurately?
A) CPI
B) WPI
C) GDP deflator
D) NNP
Answer: A
Explanation: CPI is directly related to household consumption expenditure.
59. Which inflation measure is used by RBI for Monetary Policy decisions?
A) CPI Combined
B) WPI
C) GDP deflator
D) CPI for Industrial Workers
Answer: A
Explanation: RBI uses CPI (Combined) as target for inflation control.
60. Which inflation measure includes primary, fuel, and manufactured products?
A) CPI
B) WPI
C) GDP deflator
D) Cost of Living Index
Answer: B
Explanation: WPI in India = primary articles + fuel & power + manufactured goods.
61. Which index is published monthly by Labour Bureau?
A) CPI for Industrial Workers (CPI-IW)
B) CPI Combined
C) WPI
D) GDP deflator
Answer: A
Explanation: Labour Bureau releases CPI-IW & CPI-AL (Agricultural Labourers).
62. Which of the following is NOT a limitation of CPI in India?
A) Time lag in data collection
B) Doesn’t include rural consumption
C) Multiple series of CPI
D) Reflects household expenses
Answer: D
Explanation: CPI does reflect consumption; the rest are limitations.
63. Which of the following is a monetary measure to control inflation?
A) Increase in bank rate
B) Increase in CRR
C) Open market operations (selling securities)
D) All of the above
Answer: D
Explanation: All are contractionary monetary policies by RBI.
64. Increasing Cash Reserve Ratio (CRR) helps in controlling inflation by:
A) Increasing money supply
B) Reducing lending capacity of banks
C) Increasing government spending
D) Raising aggregate demand
Answer: B
Explanation: Higher CRR reduces bank liquidity → credit creation falls.
65. Raising Repo Rate by RBI leads to:
A) Cheaper loans
B) Costlier loans → reduced demand
C) No effect on inflation
D) More money supply
Answer: B
Explanation: Higher repo → banks borrow at higher cost → lending rates rise → inflation falls.
66. Which of the following is a fiscal measure to control inflation?
A) Reducing government expenditure
B) Increasing direct taxes
C) Reducing fiscal deficit
D) All of the above
Answer: D
Explanation: All fiscal tools help reduce aggregate demand.
67. Supply-side measures to control inflation include:
A) Importing essential goods
B) Improving transport & storage
C) Relaxing import duties
D) All of the above
Answer: D
Explanation: All measures help increase supply & reduce price pressure.
68. Price control and rationing are examples of:
A) Monetary measures
B) Fiscal measures
C) Direct control measures
D) Structural measures
Answer: C
Explanation: Direct controls fix maximum price & ration supply.
69. Which institution in India is responsible for inflation targeting?
A) Finance Ministry
B) RBI
C) NITI Aayog
D) Planning Commission
Answer: B
Explanation: RBI targets inflation through Monetary Policy Committee (MPC).
70. The inflation target set under India’s flexible inflation targeting framework is:
A) 2% ± 1
B) 4% ± 2
C) 6% ± 3
D) 5% ± 1
Answer: B
Explanation: RBI’s target = 4% with ±2% band (2–6%).
71. Which Act amended RBI’s role to adopt inflation targeting in India?
A) RBI Act, 1934
B) FRBM Act, 2003
C) Banking Regulation Act, 1949
D) Companies Act, 2013
Answer: A
Explanation: The RBI Act, 1934 was amended in 2016 for inflation targeting.
72. Inflation control using demand management tools refers to:
A) Monetary & fiscal policies
B) Price controls
C) Wage controls
D) Subsidies
Answer: A
Explanation: Demand management → controlling aggregate demand via monetary/fiscal policy.
73. If inflation is due to cost-push factors, the best remedy is:
A) Monetary tightening
B) Fiscal tightening
C) Supply-side improvements
D) Decreasing CRR
Answer: C
Explanation: Cost-push inflation needs supply-side measures.
74. Indexation of wages to inflation is called:
A) Wage-price spiral
B) De-indexation
C) Inflation targeting
D) De-escalation clause
Answer: A
Explanation: Linking wages to inflation fuels wage-price spiral.
75. A policy mix to control inflation usually involves:
A) Only monetary policy
B) Only fiscal policy
C) Both monetary and fiscal measures
D) Neither monetary nor fiscal measures
Answer: C
Explanation: Effective inflation control requires coordination of monetary & fiscal policies.
76. Which body sets India’s inflation target?
A) NITI Aayog
B) Monetary Policy Committee (MPC)
C) Finance Commission
D) Planning Commission
Answer: B
Explanation: The MPC under RBI sets and monitors inflation target.
77. Current inflation target in India (till March 2026) is:
A) 2% ± 1
B) 4% ± 2
C) 5% ± 1
D) 6% ± 3
Answer: B
Explanation: India follows Flexible Inflation Targeting (FIT): 4% ± 2% band (2–6%).
78. Who chairs the Monetary Policy Committee (MPC) of India?
A) Finance Minister
B) RBI Governor
C) Prime Minister
D) Chief Economic Adviser
Answer: B
Explanation: RBI Governor is ex-officio Chairperson of MPC.
79. High inflation accompanied by slow growth in India is called:
A) Disinflation
B) Stagflation
C) Hyperinflation
D) Creeping inflation
Answer: B
Explanation: Inflation + stagnation + unemployment = stagflation.
80. Which of the following fuels imported inflation in India?
A) High MSP
B) Rising crude oil prices globally
C) Excess government borrowing
D) Increased wages
Answer: B
Explanation: India imports >80% of crude → oil price rise causes inflation.
81. Food inflation in India is often due to:
A) Supply bottlenecks
B) Hoarding & black marketing
C) Seasonal variation in agricultural output
D) All of the above
Answer: D
Explanation: Food inflation is driven by structural & seasonal factors.
82. Which type of inflation was common in India during the 1970s oil shocks?
A) Demand-pull inflation
B) Cost-push inflation
C) Hyperinflation
D) Reflation
Answer: B
Explanation: Oil crisis → cost-push inflation.
83. Which index was earlier the main measure of inflation in India before CPI?
A) GDP deflator
B) CPI-IW
C) WPI
D) Cost of Living Index
Answer: C
Explanation: WPI was India’s main inflation measure till 2011.
84. “Headline inflation” in India is measured by:
A) WPI
B) CPI Combined
C) GDP deflator
D) CPI-IW
Answer: B
Explanation: CPI Combined is India’s official headline inflation indicator.
85. Inflation hurts which group the most?
A) Debtors
B) Businessmen
C) Fixed income groups
D) Farmers
Answer: C
Explanation: Salaried & pensioners suffer most as income doesn’t rise with prices.
86. Inflation benefits:
A) Creditors
B) Debtors
C) Fixed wage earners
D) Consumers
Answer: B
Explanation: Debtors repay loans in cheaper money.
87. In India, which fiscal tool is used to control inflation?
A) Reduction in indirect taxes
B) Increase in government spending
C) Reduction in fiscal deficit
D) Printing more currency
Answer: C
Explanation: Cutting fiscal deficit lowers demand pressure.
88. “Headline vs Core Inflation” – Core inflation excludes:
A) Manufactured goods
B) Fuel & food items
C) Services
D) Imports
Answer: B
Explanation: Core = inflation excluding food & fuel (volatile items).
89. Which of the following reflects household inflation experience in India?
A) WPI
B) CPI
C) GDP deflator
D) CRR
Answer: B
Explanation: CPI measures cost of living, directly relevant to households.
90. During high inflation, RBI usually:
A) Reduces repo rate
B) Increases repo rate
C) Reduces CRR
D) Expands money supply
Answer: B
Explanation: Higher repo rate → loans costlier → demand falls.
91. Which of the following is a structural measure to control food inflation in India?
A) Increasing subsidies
B) Investment in storage & cold chains
C) Reducing repo rate
D) Printing currency
Answer: B
Explanation: Better storage & distribution reduces wastage & seasonal inflation.
92. Inflation in India is largely influenced by:
A) Oil prices & monsoon
B) Gold imports
C) Industrial productivity
D) Population growth
Answer: A
Explanation: Oil & agriculture (monsoon) are key drivers of Indian inflation.
93. If CPI inflation > WPI inflation, it usually indicates:
A) Industrial inflation
B) Food & services inflation
C) Deflation
D) Inflation in exports only
Answer: B
Explanation: CPI covers food & services, WPI excludes services.
94. Which inflation measure is broader: CPI or GDP deflator?
A) CPI
B) GDP deflator
C) Both equal
D) None
Answer: B
Explanation: GDP deflator includes all goods & services in GDP.
95. Which is NOT an effect of persistent inflation in India?
A) Rising inequality
B) Encouragement to savings
C) Decline in purchasing power
D) Capital flight
Answer: B
Explanation: Inflation discourages savings (real value falls).
96. “Imported inflation” in India mainly relates to:
A) Electronics imports
B) Oil imports
C) Food imports
D) Arms imports
Answer: B
Explanation: Oil is the biggest source of imported inflation.
97. Which committee recommended inflation targeting for India?
A) Rangarajan Committee
B) Urjit Patel Committee (2014)
C) Narasimham Committee
D) Kelkar Committee
Answer: B
Explanation: Urjit Patel Committee recommended adopting inflation targeting.
98. Inflation in India is officially targeted using:
A) WPI
B) CPI Combined
C) CPI-IW
D) GDP deflator
Answer: B
Explanation: MPC targets CPI Combined inflation.
99. Which of the following is an example of reflationary policy in India?
A) Reducing repo rate during slowdown
B) Cutting government spending
C) Increasing CRR during boom
D) Selling govt securities
Answer: A
Explanation: Lower repo = cheap credit = revive demand in slowdown.
100. India’s flexible inflation targeting (FIT) framework was introduced in:
A) 2012
B) 2014
C) 2016
D) 2018
Answer: C
Explanation: FIT was adopted in 2016 by amending RBI Act, 1934.