Chapter: Inflation
1.

Inflation is a situation when

A. Prices of some goods rise
B. General price level rises continuously
C. Prices double every year
D. Prices rise and fall
Answer» B. General price level rises continuously
2.

An inflation caused by an enhanced wages of labour is

A. Demand-pull inflation
B. Cost-push inflation
C. Hyperinflation
D. Stagflation
Answer» B. Cost-push inflation
3.

Inflation in under-developed country is basically caused by

A. Mass poverty
B. Less production
C. Lack of technical know-how
D. Market imperfection
Answer» D. Market imperfection
4.

According to Keynes, inflationary gap is caused by

A. excess supply
B. excess demand
C. deficiency of demand
D. deficiency of supply
Answer» B. excess demand
5.

Stagflation implies a situation of

A. High inflation and high unemployment
B. Low unemployment and low inflation
C. High inflation and low unemployment
D. Low inflation and high unemployment
Answer» A. High inflation and high unemployment
6.

Demand- Pull inflation is caused by an

A. Increase in the aggregate effective demand for goods and services
B. Increase in the money incomes of the factors of production
C. Increased investment in the economy
D. All of the above
Answer» A. Increase in the aggregate effective demand for goods and services
7.

Which of the following is a monetary measure to control inflation in an economy?

A. Increase in money supply
B. Demonetization of currency
C. Increase in government expenditure
D. All of the above
Answer» B. Demonetization of currency
8.

In Keynesian view, inflation is

A. The rise in the price level after the point of full employment
B. A rise in the price level before the point of full employment
C. Too much money chasing too few goods
D. All of the above
Answer» A. The rise in the price level after the point of full employment
9.

“Inflation is a state in which the value of money is falling i.e., prices are rising”.Who said this?

A. Hansen
B. Keynes
C. Crowther
D. Fisher
Answer» C. Crowther
10.

If inflation is allowed to continue without any check, it is known as

A. Supressed inflation
B. Normal inflation
C. Open inflation
D. Deflation
Answer» C. Open inflation
11.

When both prices and money income fall, the situation is called

A. Disinflation
B. Recession
C. Deflation
D. Anti-inflation
Answer» C. Deflation
12.

Inflation in a developed country usually sets in

A. Before the point of full employment
B. After the point of full employment
C. at the point full employment
D. None of the above
Answer» B. After the point of full employment
13.

During inflation, who suffers the most?

A. Wage and salary earners
B. Creditors
C. Debtors
D. Businessman
Answer» A. Wage and salary earners
14.

When government interrupts price rise, there is

A. Suppressed inflation
B. Reflation
C. Open inflation
D. Deflation
Answer» A. Suppressed inflation
15.

The phenomenal rise in prices accompanied by increased real income is known as

A. inflation
B. deflation
C. reflation
D. None of the above
Answer» C. reflation
16.

Which of the following measure proves effective in reducing the rate of inflation?

A. Decreased personal consumption
B. Evaluation of currency
C. Increased taxation
D. All of the above
Answer» C. Increased taxation
17.

Inflation can be controlled by applying:

A. Monetary and fiscal policies
B. Monetary and labour policy
C. Fiscal and Commercial Policies
D. All of the above
Answer» A. Monetary and fiscal policies
18.

During inflation

A. Lenders lose, borrowers gain
B. Borrowers lose, lenders gain
C. Borrowers and lenders both lose
D. All sections of the society gain
Answer» A. Lenders lose, borrowers gain
19.

Which people are most likely to gain during inflation?

A. Those living on pension
B. Those living on their savings
C. Those who are repaying borrowed money
D. Those who have lent money
Answer» C. Those who are repaying borrowed money
20.

Inflation leads to

A. Distribution of income equal
B. Distribution of income unequal
C. No effect on distribution of income
D. Affects only industrial sector
Answer» B. Distribution of income unequal
21.

Inflation in an under-developed economy generally sets in

A. Before the point of full employment
B. After the point of full employment
C. At the point of full employment level
D. All of the above
Answer» A. Before the point of full employment
22.

Which of the following measure is adopted to reduce inflation?

A. Reduction in bank rate
B. Reduction in Repo rate
C. Increase in government expenditure
D. Cuts in government spending
Answer» D. Cuts in government spending
23.

According to the monetarists, inflation is caused by

A. Supply shocks
B. Expansionary fiscal policies
C. Expansionary monetary policies
D. Government regulations
Answer» C. Expansionary monetary policies
24.

Theoretically, one can distinguish a demand- pull inflation from a cost-push inflation by comparing

A. How fast prices rise relative to wages
B. The unemployment rate with its natural rate level
C. When prices rise relative to wages
D. None of the above
Answer» B. The unemployment rate with its natural rate level
25.

Demand-pull inflation arises when

A. Policymakers set a very high unemployment target
B. A persistent budget deficit is financed by money creation
C. The deficit is financed by selling bonds to the public
D. All of the above
Answer» B. A persistent budget deficit is financed by money creation
26.

Government may pursue inflationary monetary policies

A. To promote high employment
B. To accommodate demands of workers for higher wages
C. To finance a persistent budget deficit
D. All of the above
Answer» D. All of the above
27.

Governments may end up with a high money growth rate and high inflation as a result of policies designed to

A. Lower unemployment
B. Finance persistent government budget deficits through money creation rather than by issuing bonds
C. Redistribute wealth from debtors to creditors
D. Both ( a) and (b
Answer» D. Both ( a) and (b
28.

Which of the following is an effect of inflation?

A. Erosion in purchasing power
B. Affects relative price of goods
C. Increase in inequalities of income
D. All of the above
Answer» D. All of the above
29.

Which of the following can be undertaken to control inflation?

A. Control on public expenditure
B. Control on hoarding and black-marketing
C. Effective control on credit
D. All of the above
Answer» D. All of the above
30.

Which of the following is phenomenon that leads to Hyperinflation?

A. It is a situation when aggregate demand in an economy outpaces aggregate supply
B. It is a situation of persistent rise in inflation along with dip in growth and increase in unemployment
C. It is a situation caused by an increase in prices of inputs like labour, raw material etc
D. It is a situation when a nation experiences very high and accelerating inflation
Answer» D. It is a situation when a nation experiences very high and accelerating inflation
31.

Inflationary gap said to exist when

A. Real GDP >Potential GDP
B. Real GDP <Potential GDP
C. Real GDP= Potential GDP
D. Unemployment rate> natural rate of unemployment
Answer» A. Real GDP >Potential GDP
32.

Phillip’s curve shows the relationship between the rate of

A. Unemployment and output growth
B. unemploymentand increase in money wages
C. Employment and inflation
D. All of the above
Answer» B. unemploymentand increase in money wages
33.

According to Phillips curve unemployment will return to the natural rate when:

A. Nominal wages are equal to expected wages
B. Real wages are back at equilibrium level
C. Nominal wages are growing faster than inflation
D. Inflation is higher than the growth of nominal wages
Answer» B. Real wages are back at equilibrium level
34.

An increase in aggregate is more likely to lead to demand pull inflation if:

A. Aggregate supply is perfectly elastic
B. Aggregate supply is perfectly inelastic
C. Aggregate supply is unit inelastic
D. Aggregate supply is relatively inelastic
Answer» B. Aggregate supply is perfectly inelastic
35.

In short-run, unemployment may fall below the natural rate of unemployment if:

A. Nominal wages have risen less than inflation
B. Nominal wages have risen at the same rate as inflation
C. Nominal wages have risen more than inflation
D. Nominal wages have risen less than unemployment
Answer» A. Nominal wages have risen less than inflation
36.

The effects of inflation on the price competitiveness of a country’s products may be offset by

A. An appreciation of the currency
B. A revaluation of the currency
C. A depreciation of the currency
D. None of the above
Answer» C. A depreciation of the currency
37.

Countries with the highest inflation rates are likely to have

A. The highest rate of money growth
B. Large budget deficits
C. The lowest interest rates
D. Both (a) and (b
Answer» D. Both (a) and (b
38.

A one-time increase in the price level is

A. rarely reported by the news media as inflation, but is nevertheless considered to be inflation by economists
B. regularly reported by the news media as inflation, but is not considered to be inflation by economist.
C. regularly reported by the news media as inflation because it is considered to be inflation by economists
D. None of the above
Answer» B. regularly reported by the news media as inflation, but is not considered to be inflation by economist.
39.

Which economist proposed that “ Inflation is always and everywhere a monetary phenomenon”

A. JM Keynes
B. J.R.Hicks
C. Milton Friedman
D. Franco Modigliani
Answer» C. Milton Friedman
40.

According to monetarists, inflation is caused by

A. Supply shocks
B. Expansionary fiscal policies
C. Expansionary monetary policies
D. Rising prices
Answer» C. Expansionary monetary policies
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