Question 1

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.

Accepted Answer

In the context of poverty planning, a general increase in prices can be attributed to several factors. These include an increase in the money supply, a decrease in the overall output levels, and an increase in effective demand. The correct answer is option (d), which indicates that all three factors can contribute to a rise in the general price level. When the money supply increases, the real value of money decreases, leading to a potential increase in prices.

Question 2

With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following? 1. Expansionary policies 2. Fiscal stimulus 3. Inflation-indexing wages 4. Higher purchasing power 5. Rising interest rates

Accepted Answer

Expansionary policies, fiscal stimulus, and higher purchasing power are factors that can lead to an increase in demand-pull inflation in the Indian economy. Expansionary policies and fiscal stimulus aim to boost economic activity, leading to higher demand for goods and services. Similarly, an increase in purchasing power enables consumers to spend more, further driving up demand and prices in the economy.

Question 3

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

Accepted Answer

Creation of new money to finance a budget deficit is likely to be the most inflationary as it increases the money supply without a corresponding increase in goods and services, leading to demand-pull inflation. This can result in a decrease in the purchasing power of money, causing prices to rise across the economy.

Question 4

A rapid increase in the rate of inflation is sometimes attributed to the 'base effect'. What is 'base effect'?

Accepted Answer

In the context of inflation, the 'base effect' refers to how the price levels of the previous year influence the calculation of the inflation rate. This means that even a small change from a low starting point can lead to a significant percentage change and may seem substantial.

Question 5

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

Accepted Answer

High levels of inflation are typically linked to rapid increases in the money supply. This is often caused by funding significant budget shortfalls through the creation of new money.

Inflation — UPSC Previous Year Questions

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.

Year-wise Distribution

Sample Questions

Inflation — UPSC Previous Year Questions

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.

Year-wise Distribution

Sample Questions