UPSC Indian Economy – Chapter 10: Inflation (27 MCQs)
UPSC Indian Economy – Chapter 10: Inflation (27 MCQs) – 27 questions, subject: Indian Economy. Every question has the correct answer with a one-line explanation; tap "Show Answer". Free practice for TNPSC, UPSC, SSC, Bank and RRB exams – Shanmugam IAS Academy, Coimbatore.
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A fall in the rate of inflation, while prices continue to rise, is called:
Correct Answer: B [disinflation]
Explanation:
Disinflation is a fall in the rate of inflation; prices still rise, but more slowly.
The new Consumer Price Index series has the base year:
Correct Answer: B [2024]
Explanation:
from 12 February 2026.
The Wholesale Price Index is compiled by:
Correct Answer: A [the Office of the Economic Adviser, DPIIT]
Explanation:
The Office of the Economic Adviser in DPIIT, Ministry of Commerce and Industry, compiles the WPI, now on base 2022-23.
In the CPI (base 2024), the weight of food and beverages in the combined index is about:
Correct Answer: D [37 per cent]
Explanation:
36.75 per cent.
In the CPI (base 2024), which division has a much larger weight in urban areas than in rural areas?
Correct Answer: B [Housing, water, electricity, gas and other fuels]
Explanation:
25.00 against 11.76.
If a price index rises from 104.40 to 110.26 in a year, the inflation rate is about:
Correct Answer: B [5.61 per cent]
Explanation:
5.86 ÷ 104.40 × 100.
WPI inflation in September 2026 was about:
Correct Answer: C [11.39 per cent]
Explanation:
Provisional WPI inflation for September 2026, released on 14 October 2026, was 11.39 per cent, up from 9.92 in August.
Which one of the following is NOT a cause of demand-pull inflation?
Correct Answer: A [Rising interest rates]
Explanation:
they reduce demand.
A sharp rise in crude oil prices raising transport and production costs is an example of:
Correct Answer: D [cost-push inflation]
Explanation:
Costlier crude raises production and transport costs, pushing prices up from the supply side – this is cost-push inflation.
The new Producer Price Indices are expected to:
Correct Answer: B [replace the WPI after about five years]
Explanation:
The WPI on base 2022-23 is to be phased out after about five years, with PPIs then measuring producer prices.
Who among the following generally loses from unanticipated inflation?
Correct Answer: A [Pensioners on fixed incomes]
Explanation:
Fixed pensions do not rise with prices, so pensioners lose purchasing power under unanticipated inflation.
Core inflation excludes:
Correct Answer: C [food and fuel]
Explanation:
the volatile items.
The short-run trade-off between inflation and unemployment is shown by the:
Correct Answer: A [Phillips curve]
Explanation:
The Phillips curve shows lower unemployment going with higher inflation in the short run.
Consider the following statements about the CPI (base 2024):
1. Its weights come from HCES 2023-24.
2. It covers 358 items.
3. It does not include online prices.
Which of the statements given above are correct?
Correct Answer: C [1 and 2 only]
Explanation:
12 online markets are included.
The Price Stabilisation Fund is mainly used to:
Correct Answer: C [build buffers of pulses and onions to control price spikes]
Explanation:
a supply-side tool.
Assertion (A): Inflation measured by the CPI and by the WPI can differ widely.
Reason (R): The CPI includes services and gives food a higher weight, while the WPI covers only goods at wholesale prices.
Correct Answer: A [Both A and R are true, and R is the correct explanation of A]
Explanation:
R explains A.
Which of the following can help control inflation?
1. Selling government securities through OMOs
2. Cutting excise duty on fuel during a price shock
3. Raising the repo rate
Select the correct answer:
Correct Answer: D [1, 2 and 3]
Explanation:
OMO sales absorb liquidity, a repo hike tightens credit and an excise cut lowers fuel prices – all three ease inflation.
Arrange the following releases of 2026 in chronological order:
1. CPI base 2024 released
2. WPI base 2022-23 released
3. CPI for September 2026 released
4. WPI for September 2026 released
Correct Answer: D [1-2-3-4]
Explanation:
February, June, 12 October, 14 October.
A deposit earns 6.5 per cent interest when inflation is 5.54 per cent. The approximate real return is:
Correct Answer: B [0.96 per cent]
Explanation:
6.5 − 5.54.
Under the flexible inflation-targeting framework, the RBI's target for CPI inflation is:
Correct Answer: A [4 per cent, with a tolerance band of ±2 per cent]
Explanation:
The Government notified 4 per cent CPI inflation with a 2–6 per cent band, retained for 1 April 2026 to 31 March 2031.
Consider the following statements:
Statement-I: In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.
Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.
Which one of the following is correct in respect of the above statements?
Correct Answer: A [Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I]
Explanation:
rate hikes followed from the belief that monetary policy can curb inflation.
Which one of the following is likely to be the most inflationary in its effects?
Correct Answer: D [Creation of new money to finance a budget deficit]
Explanation:
Creating new money adds directly to the money supply without reducing spending elsewhere, so it is the most inflationary.
With reference to the 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
Select the correct answer using the code given below:
Correct Answer: A [1, 2 and 4 only]
Explanation:
Expansionary policies, fiscal stimulus and higher purchasing power raise aggregate demand; indexed wages and rising interest rates do not.
Consider the following statements:
1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. The 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?
Correct Answer: A [1 and 2 only]
Explanation:
Food weighs more in the CPI and only the CPI covers services; the RBI targets CPI, not WPI, so statement 3 is false.
Which of the following brings out the 'Consumer Price Index Number for Industrial Workers'?
Correct Answer: C [The Labour Bureau]
Explanation:
The Labour Bureau, under the Ministry of Labour and Employment, compiles the CPI-IW, now on base 2016.
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 code given below:
Correct Answer: D [1, 2 and 3]
Explanation:
More money, lower output and higher effective demand can each push the general price level up.
Consider the following statements:
1. Inflation benefits the debtors.
2. Inflation benefits the bondholders.
Which of the statements given above is/are correct?
Correct Answer: A [1 only]
Explanation:
Debtors repay in money of lower value and gain; bondholders receive fixed sums worth less, so statement 2 is false.
➤ Full notes, maps, tables, a reason for every option and Mains PYQs – U15 · Indian Economy (UPSC book, ₹249): www.shanmugamiasacademy.in/study-materials/upsc-indian-economy
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