Inflation
This comprehensive set of 300 Multiple Choice Questions (MCQs) on Inflation has been designed to provide students, aspirants, and educators with a complete learning resource. Covering fundamentals, advanced concepts, global trends, historical episodes, and policy strategies, each question is paired with clear answers and explanations.
Whether you are preparing for UPSC, JEE, SAT, or other competitive exams, this mega‑set ensures:
- Full coverage of inflation topics from basics to advanced applications
- Exam‑style practice with authentic question framing
- Concept clarity through detailed explanations
- Global relevance with examples from developed and developing economies
By the end of this module, readers will gain a strong conceptual foundation and practical exam readiness, making this one of the most complete inflation MCQ resources available.
✅ A) Sustained rise in general price levels
B) Temporary fall in prices
C) Elimination of money supply
D) Inflation is irrelevant
Explanation: Inflation is a persistent increase in prices.
Q2. Deflation refers to:
✅ A) Sustained fall in general price levels
B) Sustained rise in prices
C) Elimination of currency
D) Deflation is irrelevant
Explanation: Deflation reduces overall prices.
Q3. Disinflation refers to:
✅ A) Decline in inflation rate while prices still rise
B) Complete fall in prices
C) Elimination of inflation
D) Disinflation is irrelevant
Explanation: Disinflation means slower inflation, not negative inflation.
Q4. Stagflation refers to:
✅ A) High inflation with stagnant growth
B) Low inflation with high growth
C) Elimination of inflation
D) Stagflation is irrelevant
Explanation: Stagflation mixes inflation with stagnation.
Q5. Hyperinflation refers to:
✅ A) Extremely rapid and excessive rise in prices
B) Sustained fall in prices
C) Elimination of prices
D) Hyperinflation is irrelevant
Explanation: Hyperinflation destabilizes economies.
Q6. Which of the following is a cause of demand‑pull inflation?
✅ A) Excess demand over supply
B) Rising production costs
C) Currency depreciation only
D) Demand‑pull is irrelevant
Explanation: Demand‑pull inflation arises from excess demand.
Q7. Which of the following is a cause of cost‑push inflation?
✅ A) Rising wages and input costs
B) Excess demand only
C) Elimination of costs
D) Cost‑push is irrelevant
Explanation: Cost‑push inflation arises from higher costs.
Q8. Inflation reduces:
✅ A) Purchasing power of money
B) Nominal value of currency
C) GDP growth only
D) Reduction is irrelevant
Explanation: Inflation erodes purchasing power.
Q9. Moderate inflation is often considered:
✅ A) Beneficial for growth and investment
B) Harmful in all cases
C) Elimination of growth
D) Moderate inflation is irrelevant
Explanation: Moderate inflation encourages spending.
Q10. Creeping inflation refers to:
✅ A) Slow, gradual rise in prices
B) Rapid rise in prices
C) Elimination of prices
D) Creeping inflation is irrelevant
Explanation: Creeping inflation is mild.
Q11. Walking inflation refers to:
✅ A) Moderate rise in prices (3–10% annually)
B) Slow rise in prices
C) Elimination of inflation
D) Walking inflation is irrelevant
Explanation: Walking inflation is moderate.
Q12. Galloping inflation refers to:
✅ A) Very high inflation (double digits annually)
B) Slow rise in prices
C) Elimination of inflation
D) Galloping inflation is irrelevant
Explanation: Galloping inflation is rapid.
Q13. Inflationary gap refers to:
✅ A) Excess demand over full employment output
B) Deficiency of demand
C) Elimination of gap
D) Gap is irrelevant
Explanation: Inflationary gap causes demand‑pull inflation.
Q14. Deflationary gap refers to:
✅ A) Deficiency of demand below full employment output
B) Excess demand only
C) Elimination of gap
D) Gap is irrelevant
Explanation: Deflationary gap reduces output.
Q15. Inflation affects savers by:
✅ A) Reducing real value of savings
B) Increasing real value of savings
C) Eliminating savings
D) Effect is irrelevant
Explanation: Inflation erodes savings.
Q16. Inflation affects borrowers by:
✅ A) Reducing real burden of debt
B) Increasing real burden of debt
C) Eliminating borrowing
D) Effect is irrelevant
Explanation: Borrowers benefit from inflation.
Q17. Inflation affects fixed income earners by:
✅ A) Reducing real income
B) Increasing real income
C) Eliminating income
D) Effect is irrelevant
Explanation: Inflation hurts fixed income earners.
Q18. Inflation affects investors by:
✅ A) Encouraging investment in real assets
B) Eliminating investment completely
C) Reducing GDP only
D) Effect is irrelevant
Explanation: Investors shift to real assets.
Q19. Inflation affects exporters by:
✅ A) Making exports less competitive
B) Making exports more competitive
C) Eliminating exports
D) Effect is irrelevant
Explanation: Inflation raises export prices.
Q20. Inflation affects importers by:
✅ A) Making imports cheaper relative to domestic goods
B) Making imports costlier
C) Eliminating imports
D) Effect is irrelevant
Explanation: Inflation encourages imports.
Q21. Inflation affects wage earners by:
✅ A) Triggering wage‑price spiral
B) Eliminating wages completely
C) Reducing GDP only
D) Effect is irrelevant
Explanation: Inflation leads to wage‑price spiral.
Q22. Inflation affects government by:
✅ A) Increasing nominal tax revenues
B) Eliminating revenues completely
C) Reducing GDP only
D) Effect is irrelevant
Explanation: Inflation raises nominal revenues.
Q23. Inflation affects monetary policy by:
✅ A) Forcing central banks to tighten liquidity
B) Eliminating policy completely
C) Reducing GDP only
D) Effect is irrelevant
Explanation: Inflation prompts contractionary policy.
Q24. Inflation affects fiscal policy by:
✅ A) Forcing government to reduce spending or raise taxes
B) Eliminating fiscal policy completely
C) Reducing GDP only
D) Effect is irrelevant
Explanation: Fiscal policy adjusts to inflation.
Q25. Inflation is measured by:
✅ A) Price indices like CPI, WPI, GDP deflator
B) Money supply only
C) Eliminating indices completely
D) Measurement is irrelevant
Explanation: Inflation is tracked by price indices.
Q26. Demand‑pull inflation occurs when:
✅ A) Aggregate demand exceeds aggregate supply
B) Aggregate supply exceeds demand
C) Prices fall due to surplus
D) Demand‑pull is irrelevant
Explanation: Excess demand drives demand‑pull inflation.
Q27. Cost‑push inflation occurs when:
✅ A) Rising wages and input costs increase prices
B) Excess demand drives prices
C) Prices fall due to surplus
D) Cost‑push is irrelevant
Explanation: Cost‑push inflation arises from higher production costs.
Q28. Which of the following is a demand‑side factor of inflation?
✅ A) Increase in government spending
B) Increase in wage costs
C) Supply chain disruption
D) Factor is irrelevant
Explanation: Demand‑side inflation arises from higher spending.
Q29. Which of the following is a supply‑side factor of inflation?
✅ A) Increase in oil prices
B) Increase in consumer demand
C) Expansionary fiscal policy
D) Factor is irrelevant
Explanation: Supply shocks cause cost‑push inflation.
Q30. Demand‑pull inflation is often associated with:
✅ A) Economic boom periods
B) Recession periods
C) Deflationary trends
D) Association is irrelevant
Explanation: Demand‑pull inflation occurs during booms.
Q31. Cost‑push inflation is often associated with:
✅ A) Supply shocks like oil crises
B) Economic booms only
C) Deflationary trends
D) Association is irrelevant
Explanation: Cost‑push inflation arises from shocks.
Q32. Which of the following policies can reduce demand‑pull inflation?
✅ A) Contractionary monetary policy
B) Expansionary fiscal policy
C) Wage increases
D) Policy is irrelevant
Explanation: Tight monetary policy reduces demand.
Q33. Which of the following policies can reduce cost‑push inflation?
✅ A) Supply‑side measures to reduce production costs
B) Increasing demand further
C) Expansionary fiscal policy
D) Policy is irrelevant
Explanation: Supply‑side reforms reduce cost‑push inflation.
Q34. Demand‑pull inflation can be triggered by:
✅ A) Excessive credit expansion by banks
B) Rising oil prices
C) Supply chain disruptions
D) Trigger is irrelevant
Explanation: Credit expansion fuels demand.
Q35. Cost‑push inflation can be triggered by:
✅ A) Rising wages and raw material costs
B) Excessive credit expansion
C) Increase in consumer demand only
D) Trigger is irrelevant
Explanation: Rising costs push prices upward.
Q36. Demand‑pull inflation is reflected in:
✅ A) Higher consumer spending and investment
B) Lower consumer spending
C) Falling demand
D) Reflection is irrelevant
Explanation: Demand‑pull inflation shows strong demand.
Q37. Cost‑push inflation is reflected in:
✅ A) Higher production costs passed to consumers
B) Higher consumer demand only
C) Falling costs
D) Reflection is irrelevant
Explanation: Cost‑push inflation shows rising costs.
Q38. Demand‑pull inflation can lead to:
✅ A) Overheating of the economy
B) Falling prices
C) Deflationary spiral
D) Effect is irrelevant
Explanation: Excess demand overheats economy.
Q39. Cost‑push inflation can lead to:
✅ A) Stagflation (inflation + stagnation)
B) Economic boom only
C) Falling prices
D) Effect is irrelevant
Explanation: Cost‑push inflation often causes stagflation.
Q40. Demand‑pull inflation is controlled by:
✅ A) Reducing money supply and demand
B) Increasing wages
C) Raising production costs
D) Control is irrelevant
Explanation: Contractionary policy reduces demand.
Q41. Cost‑push inflation is controlled by:
✅ A) Increasing supply and reducing costs
B) Reducing demand only
C) Eliminating supply completely
D) Control is irrelevant
Explanation: Supply‑side reforms reduce costs.
Q42. Demand‑pull inflation is measured by:
✅ A) Rising CPI due to higher demand
B) Falling CPI due to lower demand
C) Eliminating CPI completely
D) Measurement is irrelevant
Explanation: CPI reflects demand‑pull inflation.
Q43. Cost‑push inflation is measured by:
✅ A) Rising CPI due to higher costs
B) Falling CPI due to lower costs
C) Eliminating CPI completely
D) Measurement is irrelevant
Explanation: CPI reflects cost‑push inflation.
Q44. Demand‑pull inflation is likely when:
✅ A) Government increases spending significantly
B) Government reduces spending
C) Supply costs rise sharply
D) Likelihood is irrelevant
Explanation: Fiscal expansion fuels demand‑pull inflation.
Q45. Cost‑push inflation is likely when:
✅ A) Oil prices rise globally
B) Government increases spending
C) Demand rises sharply
D) Likelihood is irrelevant
Explanation: Oil shocks trigger cost‑push inflation.
Q46. Demand‑pull inflation impacts:
✅ A) Consumers by reducing purchasing power
B) Producers by lowering costs
C) Economy by deflation
D) Impact is irrelevant
Explanation: Demand‑pull inflation reduces purchasing power.
Q47. Cost‑push inflation impacts:
✅ A) Producers by raising costs and reducing output
B) Consumers by increasing demand
C) Economy by deflation
D) Impact is irrelevant
Explanation: Cost‑push inflation raises costs.
Q48. Demand‑pull inflation is often temporary if:
✅ A) Supply adjusts to meet demand
B) Supply remains stagnant
C) Costs rise sharply
D) Temporariness is irrelevant
Explanation: Supply adjustment stabilizes prices.
Q49. Cost‑push inflation is often persistent if:
✅ A) Supply shocks continue over time
B) Demand falls sharply
C) Costs decline
D) Persistence is irrelevant
Explanation: Persistent shocks sustain cost‑push inflation.
Q50. Demand‑pull vs cost‑push inflation differ because:
✅ A) One arises from excess demand, the other from rising costs
B) Both arise only from demand
C) Both arise only from costs
D) Difference is irrelevant
Explanation: Demand‑pull is demand‑driven, cost‑push is supply‑driven.
Q51. Consumer Price Index (CPI) measures:
✅ A) Changes in prices of consumer goods and services
B) Wholesale prices only
C) Elimination of prices completely
D) CPI is irrelevant
Explanation: CPI tracks consumer inflation.
Q52. Wholesale Price Index (WPI) measures:
✅ A) Price changes at wholesale level
B) Consumer prices only
C) Eliminates wholesale prices completely
D) WPI is irrelevant
Explanation: WPI tracks wholesale inflation.
Q53. GDP deflator measures:
✅ A) Ratio of nominal GDP to real GDP
B) Only consumer prices
C) Eliminates GDP completely
D) Deflator is irrelevant
Explanation: GDP deflator reflects overall price changes.
Q54. CPI is often used for:
✅ A) Measuring cost of living
B) Measuring only wholesale trade
C) Eliminating living costs completely
D) Use is irrelevant
Explanation: CPI measures cost of living changes.
Q55. WPI is often used for:
✅ A) Tracking inflation at producer/wholesale level
B) Tracking consumer spending only
C) Eliminating wholesale trade completely
D) Use is irrelevant
Explanation: WPI reflects producer prices.
Q56. GDP deflator differs from CPI because:
✅ A) Includes all goods and services in GDP
B) Includes only consumer goods
C) Eliminates GDP completely
D) Difference is irrelevant
Explanation: GDP deflator covers broader basket.
Q57. Headline inflation refers to:
✅ A) Inflation including all items in basket
B) Inflation excluding food and fuel
C) Eliminates inflation completely
D) Headline is irrelevant
Explanation: Headline inflation includes all items.
Q58. Core inflation refers to:
✅ A) Inflation excluding food and fuel prices
B) Inflation including all items
C) Eliminates inflation completely
D) Core is irrelevant
Explanation: Core inflation excludes volatile items.
Q59. CPI basket includes:
✅ A) Food, housing, clothing, transport, healthcare
B) Only wholesale goods
C) Eliminates basket completely
D) Basket is irrelevant
Explanation: CPI basket reflects consumer spending.
Q60. WPI basket includes:
✅ A) Manufactured goods, fuel, primary articles
B) Only consumer goods
C) Eliminates basket completely
D) Basket is irrelevant
Explanation: WPI basket reflects wholesale trade.
Q61. CPI is more relevant for:
✅ A) Measuring impact on households
B) Measuring wholesale trade only
C) Eliminating households completely
D) Relevance is irrelevant
Explanation: CPI reflects household inflation.
Q62. WPI is more relevant for:
✅ A) Measuring impact on producers and traders
B) Measuring household inflation only
C) Eliminating producers completely
D) Relevance is irrelevant
Explanation: WPI reflects producer inflation.
Q63. GDP deflator is more comprehensive because:
✅ A) Covers all goods and services produced domestically
B) Covers only consumer goods
C) Eliminates GDP completely
D) Comprehensiveness is irrelevant
Explanation: GDP deflator covers entire economy.
Q64. CPI is often used for:
✅ A) Indexation of wages and pensions
B) Measuring wholesale trade only
C) Eliminating wages completely
D) Use is irrelevant
Explanation: CPI adjusts wages and pensions.
Q65. WPI is often used for:
✅ A) Policy decisions on trade and industry
B) Household cost of living only
C) Eliminates trade completely
D) Use is irrelevant
Explanation: WPI guides trade policy.
Q66. GDP deflator is often used for:
✅ A) Adjusting nominal GDP to real GDP
B) Measuring only consumer inflation
C) Eliminates GDP completely
D) Use is irrelevant
Explanation: GDP deflator adjusts GDP.
Q67. CPI is calculated by:
✅ A) Weighted average of prices of consumer basket
B) Simple average of wholesale prices
C) Eliminates calculation completely
D) Calculation is irrelevant
Explanation: CPI uses weighted average.
Q68. WPI is calculated by:
✅ A) Weighted average of wholesale basket prices
B) Weighted average of consumer basket prices
C) Eliminates calculation completely
D) Calculation is irrelevant
Explanation: WPI uses wholesale basket.
Q69. GDP deflator is calculated by:
✅ A) Nominal GDP ÷ Real GDP × 100
B) CPI ÷ WPI × 100
C) Eliminates GDP completely
D) Calculation is irrelevant
Explanation: GDP deflator compares nominal and real GDP.
Q70. Headline inflation is volatile because:
✅ A) Includes food and fuel prices
B) Excludes food and fuel prices
C) Eliminates volatility completely
D) Volatility is irrelevant
Explanation: Food and fuel cause volatility.
Q71. Core inflation is stable because:
✅ A) Excludes volatile food and fuel prices
B) Includes all items
C) Eliminates stability completely
D) Stability is irrelevant
Explanation: Core inflation excludes volatile items.
Q72. CPI is often criticized because:
✅ A) Basket may not reflect all households equally
B) Basket reflects all households perfectly
C) Eliminates criticism completely
D) Criticism is irrelevant
Explanation: CPI basket may be biased.
Q73. WPI is often criticized because:
✅ A) Excludes services sector prices
B) Includes all services
C) Eliminates criticism completely
D) Criticism is irrelevant
Explanation: WPI excludes services.
Q74. GDP deflator is often criticized because:
✅ A) Calculated annually, less frequent than CPI/WPI
B) Calculated monthly
C) Eliminates criticism completely
D) Criticism is irrelevant
Explanation: GDP deflator is less frequent.
Q75. CPI, WPI, and GDP deflator together:
✅ A) Provide comprehensive inflation measurement
B) Provide only partial inflation measurement
C) Eliminate measurement completely
D) Together are irrelevant
Explanation: Combined indices give full picture.
Q76. Monetary policy refers to:
✅ A) Central bank actions to control money supply and interest rates
B) Government fiscal spending only
C) Elimination of policy completely
D) Monetary policy is irrelevant
Explanation: Monetary policy manages money and inflation.
Q77. Repo rate refers to:
✅ A) Rate at which central bank lends to commercial banks
B) Rate at which banks lend to customers
C) Elimination of lending completely
D) Repo is irrelevant
Explanation: Repo rate controls liquidity.
Q78. Reverse repo rate refers to:
✅ A) Rate at which central bank borrows from commercial banks
B) Rate at which banks borrow from customers
C) Elimination of borrowing completely
D) Reverse repo is irrelevant
Explanation: Reverse repo absorbs liquidity.
Q79. Cash Reserve Ratio (CRR) refers to:
✅ A) Percentage of deposits banks must keep with central bank
B) Percentage of deposits banks lend freely
C) Elimination of reserves completely
D) CRR is irrelevant
Explanation: CRR controls lending capacity.
Q80. Statutory Liquidity Ratio (SLR) refers to:
✅ A) Portion of deposits banks must invest in approved securities
B) Portion banks lend freely
C) Elimination of securities completely
D) SLR is irrelevant
Explanation: SLR ensures financial discipline.
Q81. Open Market Operations (OMO) refer to:
✅ A) Buying and selling of government securities by central bank
B) Buying and selling of consumer goods
C) Elimination of securities completely
D) OMO is irrelevant
Explanation: OMOs manage liquidity.
Q82. Inflation targeting refers to:
✅ A) Central bank sets explicit inflation goals
B) Central bank ignores inflation completely
C) Elimination of targeting
D) Targeting is irrelevant
Explanation: Inflation targeting guides policy.
Q83. Monetary Policy Committee (MPC) refers to:
✅ A) Group that decides policy rates in India
B) Group that decides fiscal spending
C) Elimination of committees completely
D) MPC is irrelevant
Explanation: MPC sets repo and policy rates.
Q84. Tight monetary policy refers to:
✅ A) Raising interest rates to reduce inflation
B) Lowering interest rates to boost demand
C) Elimination of policy completely
D) Tight policy is irrelevant
Explanation: Tight policy reduces demand.
Q85. Expansionary monetary policy refers to:
✅ A) Lowering interest rates to boost demand
B) Raising interest rates to reduce inflation
C) Elimination of policy completely
D) Expansionary is irrelevant
Explanation: Expansionary policy stimulates demand.
Q86. Inflation is controlled by:
✅ A) Increasing repo rate and CRR
B) Reducing repo rate and CRR
C) Eliminating inflation completely
D) Control is irrelevant
Explanation: Higher rates reduce inflation.
Q87. Deflation is controlled by:
✅ A) Lowering repo rate and CRR
B) Raising repo rate and CRR
C) Eliminating deflation completely
D) Control is irrelevant
Explanation: Lower rates boost demand.
Q88. Liquidity Adjustment Facility (LAF) refers to:
✅ A) Framework using repo and reverse repo to manage liquidity
B) Framework using fiscal spending only
C) Elimination of liquidity completely
D) LAF is irrelevant
Explanation: LAF balances liquidity.
Q89. Marginal Standing Facility (MSF) refers to:
✅ A) Emergency borrowing facility for banks at higher rate
B) Regular borrowing facility at lower rate
C) Elimination of borrowing completely
D) MSF is irrelevant
Explanation: MSF provides emergency liquidity.
Q90. Bank Rate refers to:
✅ A) Rate at which central bank lends long‑term funds to banks
B) Rate at which banks lend to customers
C) Elimination of rates completely
D) Bank rate is irrelevant
Explanation: Bank rate influences long‑term lending.
Q91. Inflation targeting in India is set by:
✅ A) RBI with MPC
B) Ministry of Finance only
C) Elimination of targeting completely
D) Targeting is irrelevant
Explanation: RBI sets inflation targets.
Q92. Inflation target in India is:
✅ A) 4% ± 2%
B) 10% ± 5%
C) 0% fixed
D) Target is irrelevant
Explanation: India targets 4% inflation with tolerance.
Q93. Transmission mechanism refers to:
✅ A) How policy rate changes affect economy
B) How fiscal spending affects only government
C) Elimination of mechanism completely
D) Transmission is irrelevant
Explanation: Transmission links policy to economy.
Q94. Inflation expectations refer to:
✅ A) Public’s anticipation of future inflation
B) Central bank ignoring inflation
C) Elimination of expectations completely
D) Expectations are irrelevant
Explanation: Expectations influence inflation outcomes.
Q95. Monetary policy credibility refers to:
✅ A) Public trust in central bank’s ability to control inflation
B) Public ignoring central bank completely
C) Elimination of credibility
D) Credibility is irrelevant
Explanation: Credibility ensures effectiveness.
Q96. Inflation control through monetary policy is limited by:
✅ A) Supply shocks and structural issues
B) Demand only
C) Elimination of control completely
D) Limitation is irrelevant
Explanation: Supply shocks reduce policy effectiveness.
Q97. Inflation control through fiscal policy refers to:
✅ A) Government reducing spending or raising taxes
B) Government increasing spending only
C) Elimination of fiscal policy completely
D) Control is irrelevant
Explanation: Fiscal policy adjusts demand.
Q98. Inflation control through monetary tightening may cause:
✅ A) Slower growth and higher unemployment
B) Faster growth and lower unemployment
C) Elimination of growth completely
D) Effect is irrelevant
Explanation: Tight policy reduces growth.
Q99. Inflation control through monetary easing may cause:
✅ A) Higher growth but risk of inflation
B) Lower growth and deflation
C) Elimination of growth completely
D) Effect is irrelevant
Explanation: Easing boosts growth but risks inflation.
Q100. Central banks balance inflation control with:
✅ A) Growth and employment objectives
B) Ignoring economy completely
C) Eliminating balance completely
D) Balance is irrelevant
Explanation: Central banks balance inflation and growth.
Q101. Nominal interest rate refers to:
✅ A) Stated rate without adjusting for inflation
B) Rate adjusted for inflation
C) Elimination of rates completely
D) Nominal rate is irrelevant
Explanation: Nominal rate is unadjusted.
Q102. Real interest rate refers to:
✅ A) Nominal rate adjusted for inflation
B) Nominal rate only
C) Elimination of inflation completely
D) Real rate is irrelevant
Explanation: Real rate reflects true cost of borrowing.
Q103. Fisher effect states:
✅ A) Nominal rate = Real rate + Inflation rate
B) Nominal rate = Inflation rate only
C) Elimination of rates completely
D) Fisher effect is irrelevant
Explanation: Fisher effect links inflation and interest.
Q104. If nominal rate is 8% and inflation is 3%, real rate is:
✅ A) 5%
B) 8%
C) 3%
D) 11%
Explanation: Real = Nominal – Inflation = 8 – 3 = 5%.
Q105. If nominal rate is 10% and inflation is 12%, real rate is:
✅ A) –2%
B) 10%
C) 12%
D) 22%
Explanation: Real = 10 – 12 = –2%.
Q106. Inflation expectations influence:
✅ A) Wage negotiations and investment decisions
B) Only government spending
C) Elimination of expectations completely
D) Influence is irrelevant
Explanation: Expectations shape economic behavior.
Q107. Adaptive expectations theory states:
✅ A) People base future inflation on past trends
B) People ignore past inflation completely
C) Elimination of expectations
D) Theory is irrelevant
Explanation: Adaptive expectations rely on past data.
Q108. Rational expectations theory states:
✅ A) People use all available information to predict inflation
B) People rely only on past inflation
C) Elimination of information completely
D) Theory is irrelevant
Explanation: Rational expectations use full information.
Q109. Inflation expectations can cause:
✅ A) Self‑fulfilling inflationary pressures
B) Deflation only
C) Elimination of inflation completely
D) Effect is irrelevant
Explanation: Expectations can drive actual inflation.
Q110. Nominal interest rates rise when:
✅ A) Inflation expectations increase
B) Inflation expectations decrease
C) Inflation eliminated completely
D) Rise is irrelevant
Explanation: Higher inflation expectations raise nominal rates.
Q111. Real interest rates fall when:
✅ A) Inflation rises faster than nominal rates
B) Inflation falls faster than nominal rates
C) Inflation eliminated completely
D) Fall is irrelevant
Explanation: Inflation erodes real rates.
Q112. Fisher equation is used to:
✅ A) Relate nominal, real, and inflation rates
B) Relate GDP and inflation only
C) Eliminate rates completely
D) Use is irrelevant
Explanation: Fisher equation links rates.
Q113. Inflation expectations are important for:
✅ A) Central bank policy decisions
B) Ignoring inflation completely
C) Eliminating expectations
D) Importance is irrelevant
Explanation: Expectations guide policy.
Q114. Nominal rates are often misleading because:
✅ A) They ignore inflation effects
B) They reflect real cost of borrowing
C) Eliminate inflation completely
D) Misleading is irrelevant
Explanation: Nominal rates don’t show real burden.
Q115. Real rates are more accurate because:
✅ A) They adjust for inflation
B) They ignore inflation completely
C) Eliminate accuracy completely
D) Accuracy is irrelevant
Explanation: Real rates show true cost.
Q116. Inflation expectations affect bond yields by:
✅ A) Raising nominal yields when inflation expected to rise
B) Lowering yields when inflation rises
C) Eliminating yields completely
D) Effect is irrelevant
Explanation: Inflation expectations raise yields.
Q117. Inflation expectations affect stock markets by:
✅ A) Reducing valuations due to higher discount rates
B) Increasing valuations automatically
C) Eliminating valuations completely
D) Effect is irrelevant
Explanation: Higher inflation expectations reduce stock values.
Q118. Inflation expectations affect wage contracts by:
✅ A) Workers demand higher wages to offset inflation
B) Workers ignore inflation completely
C) Eliminate wages completely
D) Effect is irrelevant
Explanation: Expectations drive wage demands.
Q119. Inflation expectations affect savings by:
✅ A) Reducing incentive to save in cash
B) Increasing incentive to save in cash
C) Eliminating savings completely
D) Effect is irrelevant
Explanation: Inflation discourages cash savings.
Q120. Inflation expectations affect borrowing by:
✅ A) Encouraging borrowing at fixed nominal rates
B) Discouraging borrowing completely
C) Eliminating borrowing
D) Effect is irrelevant
Explanation: Borrowers benefit if inflation rises.
Q121. Inflation expectations affect investment by:
✅ A) Shifting preference to real assets like property and gold
B) Shifting preference to cash holdings
C) Eliminating investment completely
D) Effect is irrelevant
Explanation: Real assets hedge inflation.
Q122. Inflation expectations affect government bonds by:
✅ A) Raising yields to compensate investors
B) Lowering yields automatically
C) Eliminating bonds completely
D) Effect is irrelevant
Explanation: Inflation expectations raise bond yields.
Q123. Inflation expectations affect monetary policy by:
✅ A) Forcing central banks to act pre‑emptively
B) Forcing central banks to ignore inflation
C) Eliminating policy completely
D) Effect is irrelevant
Explanation: Expectations guide central bank actions.
Q124. Inflation expectations affect fiscal policy by:
✅ A) Forcing government to adjust spending and taxation
B) Forcing government to ignore inflation
C) Eliminating fiscal policy completely
D) Effect is irrelevant
Explanation: Expectations influence fiscal choices.
Q125. Inflation expectations are crucial because:
✅ A) They shape actual inflation outcomes
B) They eliminate inflation completely
C) They reduce GDP only
D) Crucial is irrelevant
Explanation: Expectations can become self‑fulfilling.
Q126. Inflation in developed economies is often:
✅ A) Moderate and stable due to strong institutions
B) Extremely volatile always
C) Eliminates inflation completely
D) Trend is irrelevant
Explanation: Developed economies maintain stability.
Q127. Inflation in developing economies is often:
✅ A) Higher and volatile due to structural issues
B) Always stable
C) Eliminates inflation completely
D) Trend is irrelevant
Explanation: Developing economies face volatility.
Q128. IMF monitors inflation globally through:
✅ A) World Economic Outlook reports
B) Domestic government reports only
C) Eliminates monitoring completely
D) Monitoring is irrelevant
Explanation: IMF publishes global inflation data.
Q129. World Bank addresses inflation by:
✅ A) Supporting structural reforms and development projects
B) Issuing currency directly
C) Eliminates inflation completely
D) Role is irrelevant
Explanation: World Bank supports reforms.
Q130. Inflation in emerging markets is often caused by:
✅ A) Supply shocks and currency depreciation
B) Strong institutions only
C) Eliminates inflation completely
D) Cause is irrelevant
Explanation: Emerging markets face shocks.
Q131. Inflation in advanced economies is often caused by:
✅ A) Demand fluctuations and monetary policy shifts
B) Currency depreciation only
C) Eliminates inflation completely
D) Cause is irrelevant
Explanation: Advanced economies face demand shifts.
Q132. Global inflation trends are influenced by:
✅ A) Oil prices and commodity markets
B) Domestic wages only
C) Eliminates trends completely
D) Influence is irrelevant
Explanation: Oil prices drive global inflation.
Q133. Inflation in Latin America historically has been:
✅ A) High due to fiscal deficits and currency crises
B) Always stable
C) Eliminates inflation completely
D) History is irrelevant
Explanation: Latin America faced hyperinflation episodes.
Q134. Inflation in Africa is often linked to:
✅ A) Supply shocks, political instability, and weak institutions
B) Strong institutions only
C) Eliminates inflation completely
D) Link is irrelevant
Explanation: Africa faces structural inflation drivers.
Q135. Inflation in Europe is often linked to:
✅ A) Monetary policy of ECB and energy prices
B) Domestic wages only
C) Eliminates inflation completely
D) Link is irrelevant
Explanation: ECB policy and energy costs drive inflation.
Q136. Inflation in the US is often linked to:
✅ A) Federal Reserve policy and consumer demand
B) Currency depreciation only
C) Eliminates inflation completely
D) Link is irrelevant
Explanation: Fed policy shapes US inflation.
Q137. Inflation in India is often linked to:
✅ A) Food prices and supply chain issues
B) Only global oil prices
C) Eliminates inflation completely
D) Link is irrelevant
Explanation: Food inflation drives India’s CPI.
Q138. Inflation in Japan is often linked to:
✅ A) Low demand and deflationary pressures historically
B) High demand always
C) Eliminates inflation completely
D) Link is irrelevant
Explanation: Japan faced deflation for decades.
Q139. Inflation in Middle East is often linked to:
✅ A) Oil price fluctuations and fiscal policies
B) Only consumer demand
C) Eliminates inflation completely
D) Link is irrelevant
Explanation: Oil prices drive Middle East inflation.
Q140. Global inflation spikes often occur during:
✅ A) Oil crises and commodity shocks
B) Stable commodity prices
C) Eliminates spikes completely
D) Occurrence is irrelevant
Explanation: Oil shocks trigger global inflation.
Q141. IMF advises countries to control inflation by:
✅ A) Tight monetary and fiscal discipline
B) Ignoring inflation completely
C) Eliminates advice completely
D) Advice is irrelevant
Explanation: IMF promotes discipline.
Q142. World Bank supports inflation control by:
✅ A) Funding infrastructure and productivity improvements
B) Issuing currency directly
C) Eliminates support completely
D) Support is irrelevant
Explanation: World Bank supports supply‑side reforms.
Q143. Inflation in developing economies often hurts:
✅ A) Poor households disproportionately
B) Rich households only
C) Eliminates households completely
D) Effect is irrelevant
Explanation: Poor households suffer more.
Q144. Inflation in advanced economies often hurts:
✅ A) Investors through reduced bond yields
B) Poor households only
C) Eliminates investors completely
D) Effect is irrelevant
Explanation: Inflation reduces real returns.
Q145. Global inflation is tracked by:
✅ A) IMF, World Bank, OECD reports
B) Domestic reports only
C) Eliminates tracking completely
D) Tracking is irrelevant
Explanation: Global institutions monitor inflation.
Q146. Inflation in emerging Asia is often driven by:
✅ A) Rapid growth and food prices
B) Deflationary pressures only
C) Eliminates inflation completely
D) Driver is irrelevant
Explanation: Growth and food costs drive inflation.
Q147. Inflation in Sub‑Saharan Africa is often driven by:
✅ A) Political instability and supply shocks
B) Strong institutions only
C) Eliminates inflation completely
D) Driver is irrelevant
Explanation: Instability drives inflation.
Q148. Inflation in Latin America is controlled by:
✅ A) Monetary tightening and fiscal reforms
B) Ignoring inflation completely
C) Eliminates control completely
D) Control is irrelevant
Explanation: Reforms stabilize inflation.
Q149. Inflation in Europe is controlled by:
✅ A) ECB monetary policy and fiscal discipline
B) Ignoring inflation completely
C) Eliminates control completely
D) Control is irrelevant
Explanation: ECB manages inflation.
Q150. Global inflation trends highlight:
✅ A) Importance of coordinated monetary and fiscal policies
B) Ignoring inflation completely
C) Eliminates trends completely
D) Highlight is irrelevant
Explanation: Coordination ensures stability.
Q151. Hyperinflation in Zimbabwe (2000s) was caused by:
✅ A) Excessive money printing and fiscal deficits
B) Strong institutions only
C) Elimination of inflation completely
D) Cause is irrelevant
Explanation: Zimbabwe printed money excessively, causing hyperinflation.
Q152. Inflation in Weimar Germany (1920s) was caused by:
✅ A) Reparations, fiscal deficits, and money printing
B) Strong monetary discipline
C) Elimination of inflation completely
D) Cause is irrelevant
Explanation: Reparations and deficits triggered hyperinflation.
Q153. Inflation in Argentina (1980s) was caused by:
✅ A) Fiscal mismanagement and currency crises
B) Strong fiscal discipline
C) Elimination of inflation completely
D) Cause is irrelevant
Explanation: Argentina faced hyperinflation due to deficits.
Q154. Inflation in India (1970s) was caused by:
✅ A) Oil shocks and food shortages
B) Strong supply chains
C) Elimination of inflation completely
D) Cause is irrelevant
Explanation: Oil crisis and shortages drove inflation.
Q155. Hyperinflation in Zimbabwe led to:
✅ A) Collapse of currency and barter trade
B) Stable currency
C) Elimination of trade completely
D) Effect is irrelevant
Explanation: Zimbabwe’s currency collapsed.
Q156. Hyperinflation in Germany led to:
✅ A) Collapse of mark and social unrest
B) Stable economy
C) Elimination of unrest completely
D) Effect is irrelevant
Explanation: Weimar hyperinflation destabilized society.
Q157. Hyperinflation in Argentina led to:
✅ A) Currency substitution and dollarization
B) Stable peso
C) Elimination of currency completely
D) Effect is irrelevant
Explanation: Argentina adopted dollarization.
Q158. Inflation in India (1970s) led to:
✅ A) Policy reforms and rationing
B) Stable growth
C) Elimination of reforms completely
D) Effect is irrelevant
Explanation: India introduced rationing and reforms.
Q159. Zimbabwe’s inflation peaked at:
✅ A) Billions of percent annually
B) 10% annually
C) 0% fixed
D) Peak is irrelevant
Explanation: Zimbabwe faced billions % inflation.
Q160. Germany’s inflation peaked at:
✅ A) Millions of percent annually
B) 5% annually
C) 0% fixed
D) Peak is irrelevant
Explanation: Weimar inflation reached millions %.
Q161. Argentina’s inflation peaked at:
✅ A) Thousands of percent annually
B) 10% annually
C) 0% fixed
D) Peak is irrelevant
Explanation: Argentina faced thousands % inflation.
Q162. India’s inflation peaked at:
✅ A) Double digits due to oil shocks
B) Stable single digits
C) 0% fixed
D) Peak is irrelevant
Explanation: India faced double‑digit inflation.
Q163. Zimbabwe controlled inflation by:
✅ A) Abandoning currency and adopting foreign currencies
B) Printing more money
C) Eliminating currency completely
D) Control is irrelevant
Explanation: Zimbabwe dollar was abandoned.
Q164. Germany controlled inflation by:
✅ A) Introducing new currency (Rentenmark)
B) Printing more marks
C) Eliminating currency completely
D) Control is irrelevant
Explanation: Rentenmark stabilized Germany.
Q165. Argentina controlled inflation by:
✅ A) Currency reforms and IMF support
B) Printing more pesos
C) Eliminating currency completely
D) Control is irrelevant
Explanation: Reforms stabilized Argentina.
Q166. India controlled inflation by:
✅ A) Tight monetary policy and rationing
B) Printing more rupees
C) Eliminating currency completely
D) Control is irrelevant
Explanation: India used rationing and policy tightening.
Q167. Zimbabwe’s hyperinflation highlighted:
✅ A) Dangers of uncontrolled money printing
B) Benefits of fiscal discipline
C) Elimination of inflation completely
D) Highlight is irrelevant
Explanation: Zimbabwe showed risks of money printing.
Q168. Germany’s hyperinflation highlighted:
✅ A) Dangers of reparations and deficits
B) Benefits of fiscal discipline
C) Elimination of inflation completely
D) Highlight is irrelevant
Explanation: Reparations destabilized Germany.
Q169. Argentina’s hyperinflation highlighted:
✅ A) Dangers of fiscal mismanagement
B) Benefits of fiscal discipline
C) Elimination of inflation completely
D) Highlight is irrelevant
Explanation: Mismanagement caused Argentina’s crisis.
Q170. India’s inflation highlighted:
✅ A) Vulnerability to global oil shocks
B) Benefits of fiscal discipline
C) Elimination of inflation completely
D) Highlight is irrelevant
Explanation: Oil shocks destabilized India.
Q171. Zimbabwe’s hyperinflation forced:
✅ A) Use of barter and foreign currencies
B) Stable domestic currency
C) Elimination of trade completely
D) Force is irrelevant
Explanation: Zimbabwe relied on barter.
Q172. Germany’s hyperinflation forced:
✅ A) Social unrest and political instability
B) Stable democracy
C) Elimination of unrest completely
D) Force is irrelevant
Explanation: Hyperinflation destabilized politics.
Q173. Argentina’s hyperinflation forced:
✅ A) Dollarization and IMF intervention
B) Stable peso
C) Elimination of intervention completely
D) Force is irrelevant
Explanation: Argentina relied on IMF.
Q174. India’s inflation forced:
✅ A) Import restrictions and rationing
B) Stable imports
C) Elimination of restrictions completely
D) Force is irrelevant
Explanation: India restricted imports.
Q175. Historical inflation episodes show:
✅ A) Importance of fiscal discipline and monetary control
B) Ignoring inflation completely
C) Elimination of lessons completely
D) Show is irrelevant
Explanation: History highlights discipline.
Q176. Stagflation refers to:
✅ A) High inflation with stagnant growth and unemployment
B) Low inflation with high growth
C) Elimination of inflation completely
D) Stagflation is irrelevant
Explanation: Stagflation mixes inflation with stagnation.
Q177. Phillips Curve shows:
✅ A) Inverse relationship between inflation and unemployment
B) Direct relationship between inflation and unemployment
C) Elimination of unemployment completely
D) Curve is irrelevant
Explanation: Phillips Curve links inflation and unemployment.
Q178. Short‑run Phillips Curve suggests:
✅ A) Trade‑off between inflation and unemployment
B) No trade‑off exists
C) Elimination of inflation completely
D) Suggestion is irrelevant
Explanation: Short‑run shows trade‑off.
Q179. Long‑run Phillips Curve suggests:
✅ A) No trade‑off, unemployment returns to natural rate
B) Permanent trade‑off exists
C) Elimination of unemployment completely
D) Suggestion is irrelevant
Explanation: Long‑run curve is vertical.
Q180. Stagflation challenges Phillips Curve because:
✅ A) Inflation and unemployment rise together
B) Inflation and unemployment fall together
C) Elimination of inflation completely
D) Challenge is irrelevant
Explanation: Stagflation breaks trade‑off.
Q181. Inflation can boost growth when:
✅ A) Moderate and predictable
B) Extremely high
C) Eliminates growth completely
D) Boost is irrelevant
Explanation: Moderate inflation encourages spending.
Q182. Inflation can harm growth when:
✅ A) Excessive and volatile
B) Moderate and stable
C) Eliminates harm completely
D) Harm is irrelevant
Explanation: Excessive inflation destabilizes growth.
Q183. Inflation affects unemployment by:
✅ A) Reducing unemployment in short run via demand
B) Increasing unemployment always
C) Eliminates unemployment completely
D) Effect is irrelevant
Explanation: Inflation reduces unemployment short‑term.
Q184. Inflation affects wages by:
✅ A) Triggering wage‑price spiral
B) Reducing wages automatically
C) Eliminates wages completely
D) Effect is irrelevant
Explanation: Inflation leads to wage‑price spiral.
Q185. Inflation affects investment by:
✅ A) Reducing confidence if volatile
B) Increasing confidence always
C) Eliminates investment completely
D) Effect is irrelevant
Explanation: Volatility discourages investment.
Q186. Inflation affects consumption by:
✅ A) Encouraging spending before prices rise further
B) Reducing spending always
C) Eliminates consumption completely
D) Effect is irrelevant
Explanation: Inflation accelerates consumption.
Q187. Inflation affects savings by:
✅ A) Reducing incentive to save in cash
B) Increasing incentive to save in cash
C) Eliminates savings completely
D) Effect is irrelevant
Explanation: Inflation erodes savings value.
Q188. Inflation affects exports by:
✅ A) Making them less competitive globally
B) Making them more competitive
C) Eliminates exports completely
D) Effect is irrelevant
Explanation: Inflation raises export prices.
Q189. Inflation affects imports by:
✅ A) Making them relatively cheaper than domestic goods
B) Making them costlier always
C) Eliminates imports completely
D) Effect is irrelevant
Explanation: Inflation encourages imports.
Q190. Inflation affects inequality by:
✅ A) Hurting poor households more than rich
B) Benefiting poor households more
C) Eliminates inequality completely
D) Effect is irrelevant
Explanation: Poor households suffer disproportionately.
Q191. Inflation affects government budgets by:
✅ A) Increasing nominal tax revenues
B) Reducing revenues automatically
C) Eliminates revenues completely
D) Effect is irrelevant
Explanation: Inflation raises nominal revenues.
Q192. Inflation affects debt by:
✅ A) Reducing real burden of fixed debt
B) Increasing real burden always
C) Eliminates debt completely
D) Effect is irrelevant
Explanation: Inflation benefits borrowers.
Q193. Inflation affects employment by:
✅ A) Creating short‑term jobs through demand expansion
B) Reducing jobs always
C) Eliminates employment completely
D) Effect is irrelevant
Explanation: Demand expansion boosts jobs short‑term.
Q194. Inflation affects productivity by:
✅ A) Reducing efficiency if volatile
B) Increasing efficiency always
C) Eliminates productivity completely
D) Effect is irrelevant
Explanation: Volatility reduces productivity.
Q195. Inflation affects monetary stability by:
✅ A) Undermining trust in currency
B) Strengthening trust automatically
C) Eliminates stability completely
D) Effect is irrelevant
Explanation: Inflation erodes currency trust.
Q196. Inflation affects fiscal stability by:
✅ A) Increasing deficits if spending rises
B) Reducing deficits automatically
C) Eliminates stability completely
D) Effect is irrelevant
Explanation: Inflation worsens fiscal deficits.
Q197. Inflation affects growth trade‑offs by:
✅ A) Forcing policymakers to balance inflation vs employment
B) Eliminating trade‑offs completely
C) Reducing GDP only
D) Effect is irrelevant
Explanation: Inflation creates policy trade‑offs.
Q198. Inflation affects long‑term growth by:
✅ A) Reducing investment and productivity if uncontrolled
B) Increasing growth automatically
C) Eliminates growth completely
D) Effect is irrelevant
Explanation: Uncontrolled inflation harms growth.
Q199. Inflation affects short‑term growth by:
✅ A) Boosting demand and output temporarily
B) Reducing demand always
C) Eliminates growth completely
D) Effect is irrelevant
Explanation: Inflation boosts short‑term demand.
Q200. Inflation & growth relationship shows:
✅ A) Moderate inflation supports growth, excessive inflation harms it
B) Inflation always supports growth
C) Inflation always harms growth
D) Relationship is irrelevant
Explanation: Balanced inflation is beneficial.
Q201. Exchange rate refers to:
✅ A) Price of one currency in terms of another
B) Elimination of currency completely
C) GDP growth only
D) Exchange rate is irrelevant
Explanation: Exchange rate measures currency value.
Q202. Currency depreciation refers to:
✅ A) Fall in value of currency under floating system
B) Rise in currency value
C) Elimination of currency completely
D) Depreciation is irrelevant
Explanation: Depreciation weakens currency.
Q203. Currency appreciation refers to:
✅ A) Rise in value of currency under floating system
B) Fall in currency value
C) Elimination of currency completely
D) Appreciation is irrelevant
Explanation: Appreciation strengthens currency.
Q204. Inflation often causes:
✅ A) Currency depreciation
B) Currency appreciation always
C) Elimination of currency completely
D) Effect is irrelevant
Explanation: Inflation reduces currency value.
Q205. Purchasing Power Parity (PPP) theory states:
✅ A) Exchange rates adjust to equalize price levels across countries
B) Exchange rates fixed permanently
C) Elimination of parity completely
D) PPP is irrelevant
Explanation: PPP links exchange rates to prices.
Q206. Inflation affects PPP by:
✅ A) Causing exchange rates to adjust to inflation differentials
B) Ignoring inflation completely
C) Eliminating PPP completely
D) Effect is irrelevant
Explanation: Inflation drives PPP adjustments.
Q207. Balance of Payments (BoP) records:
✅ A) All economic transactions between residents and rest of world
B) Only domestic transactions
C) Eliminates payments completely
D) BoP is irrelevant
Explanation: BoP tracks international transactions.
Q208. Current account in BoP includes:
✅ A) Trade in goods, services, income, and transfers
B) Only capital flows
C) Eliminates trade completely
D) Current account is irrelevant
Explanation: Current account records trade and transfers.
Q209. Capital account in BoP includes:
✅ A) Capital transfers and asset transactions
B) Only goods trade
C) Eliminates capital completely
D) Capital account is irrelevant
Explanation: Capital account tracks capital flows.
Q210. Inflation affects BoP by:
✅ A) Making exports less competitive and imports cheaper
B) Making exports more competitive
C) Eliminates BoP completely
D) Effect is irrelevant
Explanation: Inflation worsens BoP.
Q211. Inflation affects exchange rate by:
✅ A) Depreciating currency due to reduced competitiveness
B) Appreciating currency automatically
C) Eliminates exchange completely
D) Effect is irrelevant
Explanation: Inflation weakens currency.
Q212. Inflation affects foreign reserves by:
✅ A) Reducing reserves as central bank defends currency
B) Increasing reserves automatically
C) Eliminates reserves completely
D) Effect is irrelevant
Explanation: Inflation pressures reserves.
Q213. Inflation affects imports by:
✅ A) Making them relatively cheaper than domestic goods
B) Making them costlier always
C) Eliminates imports completely
D) Effect is irrelevant
Explanation: Inflation encourages imports.
Q214. Inflation affects exports by:
✅ A) Making them less competitive globally
B) Making them more competitive
C) Eliminates exports completely
D) Effect is irrelevant
Explanation: Inflation raises export prices.
Q215. Inflation affects foreign investment by:
✅ A) Reducing attractiveness due to currency depreciation
B) Increasing attractiveness automatically
C) Eliminates investment completely
D) Effect is irrelevant
Explanation: Inflation discourages foreign investors.
Q216. Inflation affects exchange rate regimes by:
✅ A) Forcing central banks to intervene in managed floats
B) Ignoring inflation completely
C) Eliminates regimes completely
D) Effect is irrelevant
Explanation: Inflation prompts interventions.
Q217. Inflation affects PPP comparisons by:
✅ A) Distorting real income comparisons across countries
B) Eliminating comparisons completely
C) Ignoring inflation completely
D) Effect is irrelevant
Explanation: Inflation distorts PPP.
Q218. Inflation affects BoP stability by:
✅ A) Widening current account deficits
B) Narrowing deficits automatically
C) Eliminates stability completely
D) Effect is irrelevant
Explanation: Inflation worsens deficits.
Q219. Inflation affects exchange rate volatility by:
✅ A) Increasing volatility due to uncertainty
B) Reducing volatility automatically
C) Eliminates volatility completely
D) Effect is irrelevant
Explanation: Inflation increases volatility.
Q220. Inflation affects competitiveness by:
✅ A) Reducing competitiveness of domestic goods
B) Increasing competitiveness automatically
C) Eliminates competitiveness completely
D) Effect is irrelevant
Explanation: Inflation reduces competitiveness.
Q221. Inflation affects tourism by:
✅ A) Making domestic tourism costlier for foreigners
B) Making tourism cheaper automatically
C) Eliminates tourism completely
D) Effect is irrelevant
Explanation: Inflation discourages tourism.
Q222. Inflation affects remittances by:
✅ A) Reducing real value of remittances received
B) Increasing value automatically
C) Eliminates remittances completely
D) Effect is irrelevant
Explanation: Inflation erodes remittance value.
Q223. Inflation affects exchange rate expectations by:
✅ A) Leading to anticipation of depreciation
B) Leading to appreciation automatically
C) Eliminates expectations completely
D) Effect is irrelevant
Explanation: Inflation drives depreciation expectations.
Q224. Inflation affects BoP financing by:
✅ A) Forcing reliance on external borrowing
B) Eliminating borrowing completely
C) Ignoring inflation completely
D) Effect is irrelevant
Explanation: Inflation pressures financing.
Q225. Inflation & exchange rate relationship shows:
✅ A) Inflation weakens currency and worsens BoP
B) Inflation strengthens currency automatically
C) Eliminates relationship completely
D) Relationship is irrelevant
Explanation: Inflation depreciates currency and worsens BoP.
Q226. Inflation affects bonds by:
✅ A) Reducing real returns for fixed‑rate bonds
B) Increasing real returns automatically
C) Eliminating bonds completely
D) Effect is irrelevant
Explanation: Inflation erodes fixed bond returns.
Q227. Inflation‑indexed bonds are designed to:
✅ A) Protect investors by adjusting returns with inflation
B) Ignore inflation completely
C) Eliminate bonds completely
D) Design is irrelevant
Explanation: Indexed bonds hedge inflation.
Q228. Treasury Inflation‑Protected Securities (TIPS) are:
✅ A) US government bonds indexed to inflation
B) Corporate bonds only
C) Eliminate securities completely
D) TIPS are irrelevant
Explanation: TIPS protect against inflation.
Q229. Inflation affects equity markets by:
✅ A) Reducing valuations due to higher discount rates
B) Increasing valuations automatically
C) Eliminating equities completely
D) Effect is irrelevant
Explanation: Inflation raises discount rates.
Q230. Inflation affects real estate by:
✅ A) Increasing demand as hedge against inflation
B) Reducing demand automatically
C) Eliminating real estate completely
D) Effect is irrelevant
Explanation: Real estate hedges inflation.
Q231. Inflation affects gold investment by:
✅ A) Increasing demand as safe haven
B) Reducing demand automatically
C) Eliminating gold completely
D) Effect is irrelevant
Explanation: Gold is a hedge against inflation.
Q232. Inflation affects stock dividends by:
✅ A) Reducing real value of fixed dividends
B) Increasing real value automatically
C) Eliminating dividends completely
D) Effect is irrelevant
Explanation: Inflation erodes dividend value.
Q233. Inflation affects savings accounts by:
✅ A) Reducing real returns if interest < inflation
B) Increasing real returns automatically
C) Eliminating savings completely
D) Effect is irrelevant
Explanation: Inflation erodes savings returns.
Q234. Inflation affects corporate borrowing by:
✅ A) Reducing real burden of fixed debt
B) Increasing burden automatically
C) Eliminating borrowing completely
D) Effect is irrelevant
Explanation: Inflation benefits borrowers.
Q235. Inflation affects venture capital by:
✅ A) Reducing attractiveness if inflation volatile
B) Increasing attractiveness automatically
C) Eliminating venture capital completely
D) Effect is irrelevant
Explanation: Volatility discourages VC.
Q236. Inflation affects foreign investment by:
✅ A) Reducing attractiveness due to currency depreciation
B) Increasing attractiveness automatically
C) Eliminating investment completely
D) Effect is irrelevant
Explanation: Inflation discourages foreign inflows.
Q237. Inflation affects pension funds by:
✅ A) Reducing real value of fixed payouts
B) Increasing payouts automatically
C) Eliminating pensions completely
D) Effect is irrelevant
Explanation: Inflation erodes pensions.
Q238. Inflation affects insurance companies by:
✅ A) Increasing claims cost and reducing real returns
B) Reducing claims automatically
C) Eliminating insurance completely
D) Effect is irrelevant
Explanation: Inflation raises claim costs.
Q239. Inflation affects mutual funds by:
✅ A) Reducing real returns if not inflation‑hedged
B) Increasing returns automatically
C) Eliminating funds completely
D) Effect is irrelevant
Explanation: Inflation erodes fund returns.
Q240. Inflation affects fixed deposits by:
✅ A) Reducing real returns if interest < inflation
B) Increasing returns automatically
C) Eliminating deposits completely
D) Effect is irrelevant
Explanation: Inflation erodes FD returns.
Q241. Inflation affects government borrowing by:
✅ A) Reducing real burden of debt
B) Increasing burden automatically
C) Eliminating borrowing completely
D) Effect is irrelevant
Explanation: Inflation benefits governments with fixed debt.
Q242. Inflation affects corporate profits by:
✅ A) Reducing margins if costs rise faster than prices
B) Increasing margins automatically
C) Eliminating profits completely
D) Effect is irrelevant
Explanation: Rising costs reduce profits.
Q243. Inflation affects stock volatility by:
✅ A) Increasing volatility due to uncertainty
B) Reducing volatility automatically
C) Eliminating volatility completely
D) Effect is irrelevant
Explanation: Inflation raises volatility.
Q244. Inflation affects commodity investment by:
✅ A) Increasing attractiveness as hedge
B) Reducing attractiveness automatically
C) Eliminating commodities completely
D) Effect is irrelevant
Explanation: Commodities hedge inflation.
Q245. Inflation affects currency investment by:
✅ A) Reducing attractiveness of domestic currency assets
B) Increasing attractiveness automatically
C) Eliminating currency completely
D) Effect is irrelevant
Explanation: Inflation weakens currency assets.
Q246. Inflation affects bond yields by:
✅ A) Raising nominal yields to compensate investors
B) Lowering yields automatically
C) Eliminating yields completely
D) Effect is irrelevant
Explanation: Inflation raises yields.
Q247. Inflation affects equity risk premium by:
✅ A) Increasing premium due to uncertainty
B) Reducing premium automatically
C) Eliminating premium completely
D) Effect is irrelevant
Explanation: Inflation raises risk premium.
Q248. Inflation affects hedging strategies by:
✅ A) Encouraging use of derivatives and real assets
B) Eliminating hedging completely
C) Ignoring inflation completely
D) Effect is irrelevant
Explanation: Hedging offsets inflation risk.
Q249. Inflation affects investment diversification by:
✅ A) Encouraging mix of equities, real assets, and indexed bonds
B) Eliminating diversification completely
C) Ignoring inflation completely
D) Effect is irrelevant
Explanation: Diversification hedges inflation.
Q250. Inflation & investment relationship shows:
✅ A) Inflation erodes fixed returns but boosts real asset demand
B) Inflation always boosts fixed returns
C) Inflation always reduces real asset demand
D) Relationship is irrelevant
Explanation: Inflation shifts investment to hedges.
Q251. Inflation affects purchasing power by:
✅ A) Reducing the value of money over time
B) Increasing value automatically
C) Eliminating money completely
D) Effect is irrelevant
Explanation: Inflation erodes purchasing power.
Q252. Inflation affects wage earners by:
✅ A) Triggering wage‑price spiral
B) Reducing wages automatically
C) Eliminating wages completely
D) Effect is irrelevant
Explanation: Workers demand higher wages to offset inflation.
Q253. Inflation affects fixed income earners by:
✅ A) Reducing real income
B) Increasing real income automatically
C) Eliminating income completely
D) Effect is irrelevant
Explanation: Inflation hurts fixed income earners.
Q254. Inflation affects salaried employees by:
✅ A) Reducing real value of salaries
B) Increasing value automatically
C) Eliminating salaries completely
D) Effect is irrelevant
Explanation: Salaries lose value if not indexed.
Q255. Inflation affects pensioners by:
✅ A) Reducing real value of fixed pensions
B) Increasing value automatically
C) Eliminating pensions completely
D) Effect is irrelevant
Explanation: Inflation erodes pensions.
Q256. Inflation affects daily wage workers by:
✅ A) Reducing purchasing power rapidly
B) Increasing power automatically
C) Eliminating wages completely
D) Effect is irrelevant
Explanation: Daily wages suffer most.
Q257. Inflation affects inequality by:
✅ A) Hurting poor households more than rich
B) Benefiting poor households more
C) Eliminating inequality completely
D) Effect is irrelevant
Explanation: Poor households suffer disproportionately.
Q258. Inflation affects rural households by:
✅ A) Raising food costs disproportionately
B) Reducing costs automatically
C) Eliminating households completely
D) Effect is irrelevant
Explanation: Rural households face food inflation.
Q259. Inflation affects urban households by:
✅ A) Raising housing and transport costs
B) Reducing costs automatically
C) Eliminating households completely
D) Effect is irrelevant
Explanation: Urban households face housing inflation.
Q260. Inflation affects middle class by:
✅ A) Reducing savings and purchasing power
B) Increasing wealth automatically
C) Eliminating class completely
D) Effect is irrelevant
Explanation: Middle class loses savings value.
Q261. Inflation affects poor households by:
✅ A) Reducing real income and consumption
B) Increasing wealth automatically
C) Eliminating households completely
D) Effect is irrelevant
Explanation: Poor households suffer most.
Q262. Inflation affects rich households by:
✅ A) Shifting investment to real assets
B) Reducing wealth automatically
C) Eliminating households completely
D) Effect is irrelevant
Explanation: Rich hedge with assets.
Q263. Inflation affects wage negotiations by:
✅ A) Workers demand higher wages to offset inflation
B) Workers ignore inflation completely
C) Eliminating negotiations completely
D) Effect is irrelevant
Explanation: Inflation drives wage demands.
Q264. Inflation affects labor unions by:
✅ A) Increasing bargaining for wage hikes
B) Reducing bargaining automatically
C) Eliminating unions completely
D) Effect is irrelevant
Explanation: Unions push for higher wages.
Q265. Inflation affects employers by:
✅ A) Raising labor costs due to wage demands
B) Reducing costs automatically
C) Eliminating employers completely
D) Effect is irrelevant
Explanation: Employers face higher costs.
Q266. Inflation affects government employees by:
✅ A) Reducing real value of salaries unless indexed
B) Increasing value automatically
C) Eliminating employees completely
D) Effect is irrelevant
Explanation: Inflation erodes salaries.
Q267. Inflation affects private sector employees by:
✅ A) Reducing real wages unless adjusted
B) Increasing wages automatically
C) Eliminating employees completely
D) Effect is irrelevant
Explanation: Inflation reduces private wages.
Q268. Inflation affects income distribution by:
✅ A) Widening gap between rich and poor
B) Narrowing gap automatically
C) Eliminating distribution completely
D) Effect is irrelevant
Explanation: Inflation worsens inequality.
Q269. Inflation affects consumption inequality by:
✅ A) Poor reduce consumption more than rich
B) Rich reduce consumption equally
C) Eliminating inequality completely
D) Effect is irrelevant
Explanation: Poor cut consumption first.
Q270. Inflation affects education affordability by:
✅ A) Raising tuition and reducing access
B) Reducing tuition automatically
C) Eliminating education completely
D) Effect is irrelevant
Explanation: Inflation raises education costs.
Q271. Inflation affects healthcare affordability by:
✅ A) Raising medical costs disproportionately
B) Reducing costs automatically
C) Eliminating healthcare completely
D) Effect is irrelevant
Explanation: Inflation raises healthcare costs.
Q272. Inflation affects housing affordability by:
✅ A) Raising rents and property prices
B) Reducing costs automatically
C) Eliminating housing completely
D) Effect is irrelevant
Explanation: Inflation raises housing costs.
Q273. Inflation affects food affordability by:
✅ A) Raising food prices disproportionately for poor
B) Reducing food prices automatically
C) Eliminating food completely
D) Effect is irrelevant
Explanation: Food inflation hurts poor households.
Q274. Inflation affects wage‑price spiral by:
✅ A) Higher wages lead to higher prices, repeating cycle
B) Lower wages reduce prices automatically
C) Eliminating spiral completely
D) Effect is irrelevant
Explanation: Wage‑price spiral sustains inflation.
Q275. Inflation & income relationship shows:
✅ A) Inflation erodes real income, widens inequality, and triggers wage‑price spiral
B) Inflation always increases income
C) Inflation always reduces inequality
D) Relationship is irrelevant
Explanation: Inflation reduces income and worsens inequality.
Q276. Inflation can be controlled by:
✅ A) Tight monetary and fiscal policies
B) Ignoring inflation completely
C) Eliminating policies altogether
D) Control is irrelevant
Explanation: Tight policies reduce demand and inflation.
Q277. Fiscal policy controls inflation by:
✅ A) Reducing government spending or raising taxes
B) Increasing spending always
C) Eliminating fiscal policy completely
D) Control is irrelevant
Explanation: Fiscal contraction reduces demand.
Q278. Monetary policy controls inflation by:
✅ A) Raising interest rates and reducing liquidity
B) Lowering interest rates always
C) Eliminating monetary policy completely
D) Control is irrelevant
Explanation: Higher rates reduce demand.
Q279. Supply‑side policies control inflation by:
✅ A) Increasing productivity and reducing costs
B) Reducing productivity automatically
C) Eliminating supply completely
D) Control is irrelevant
Explanation: Supply‑side reforms reduce cost‑push inflation.
Q280. Price controls attempt to:
✅ A) Limit price increases by regulation
B) Encourage free pricing always
C) Eliminate prices completely
D) Control is irrelevant
Explanation: Price controls cap inflation temporarily.
Q281. Wage controls attempt to:
✅ A) Limit wage increases to prevent wage‑price spiral
B) Encourage unlimited wage hikes
C) Eliminate wages completely
D) Control is irrelevant
Explanation: Wage controls reduce inflationary pressures.
Q282. Inflation targeting improves:
✅ A) Credibility and transparency of monetary policy
B) Eliminates credibility completely
C) Ignores inflation
D) Targeting is irrelevant
Explanation: Targeting builds trust.
Q283. Credibility of central bank is crucial because:
✅ A) Public trusts inflation targets and expectations stabilize
B) Public ignores central bank completely
C) Eliminates credibility completely
D) Crucial is irrelevant
Explanation: Credibility ensures effectiveness.
Q284. Inflation control through fiscal discipline requires:
✅ A) Reducing deficits and debt
B) Increasing deficits always
C) Eliminating discipline completely
D) Requirement is irrelevant
Explanation: Fiscal discipline stabilizes inflation.
Q285. Inflation control through monetary discipline requires:
✅ A) Avoiding excessive money printing
B) Printing unlimited money
C) Eliminating discipline completely
D) Requirement is irrelevant
Explanation: Monetary discipline prevents inflation.
Q286. Inflation control through supply‑side reforms includes:
✅ A) Improving infrastructure, productivity, and technology
B) Ignoring supply completely
C) Eliminating reforms
D) Reforms are irrelevant
Explanation: Supply‑side reforms reduce costs.
Q287. Inflation control through trade policy includes:
✅ A) Reducing import tariffs to lower prices
B) Increasing tariffs always
C) Eliminating trade completely
D) Policy is irrelevant
Explanation: Trade liberalization reduces inflation.
Q288. Inflation control through subsidies includes:
✅ A) Providing subsidies to reduce essential goods prices
B) Eliminating subsidies completely
C) Ignoring inflation
D) Subsidies are irrelevant
Explanation: Subsidies reduce consumer burden.
Q289. Inflation control through taxation includes:
✅ A) Raising taxes to reduce demand
B) Lowering taxes always
C) Eliminating taxes completely
D) Taxation is irrelevant
Explanation: Higher taxes reduce demand.
Q290. Inflation control through credit policy includes:
✅ A) Restricting credit expansion by banks
B) Encouraging unlimited credit
C) Eliminating credit completely
D) Policy is irrelevant
Explanation: Credit control reduces demand.
Q291. Inflation control through exchange rate policy includes:
✅ A) Defending currency to reduce imported inflation
B) Ignoring currency completely
C) Eliminating exchange rates
D) Policy is irrelevant
Explanation: Strong currency reduces inflation.
Q292. Inflation control through global coordination includes:
✅ A) Cooperation among IMF, World Bank, and central banks
B) Ignoring coordination completely
C) Eliminating institutions
D) Coordination is irrelevant
Explanation: Global coordination stabilizes inflation.
Q293. Inflation control through income policy includes:
✅ A) Linking wages to productivity growth
B) Raising wages arbitrarily
C) Eliminating income completely
D) Policy is irrelevant
Explanation: Income policies prevent wage‑price spiral.
Q294. Inflation control through structural reforms includes:
✅ A) Improving agriculture, industry, and services
B) Ignoring reforms completely
C) Eliminating structure completely
D) Reforms are irrelevant
Explanation: Structural reforms reduce inflation drivers.
Q295. Inflation control through technology includes:
✅ A) Increasing efficiency and reducing costs
B) Ignoring technology completely
C) Eliminating technology
D) Effect is irrelevant
Explanation: Technology reduces inflationary pressures.
Q296. Inflation control through productivity growth includes:
✅ A) Raising output to match demand
B) Reducing output automatically
C) Eliminating productivity completely
D) Growth is irrelevant
Explanation: Productivity growth stabilizes prices.
Q297. Inflation control through credibility requires:
✅ A) Central bank consistency and transparency
B) Ignoring credibility completely
C) Eliminating transparency
D) Requirement is irrelevant
Explanation: Credibility ensures policy success.
Q298. Inflation control through communication requires:
✅ A) Clear guidance from central bank to public
B) Ignoring communication completely
C) Eliminating guidance
D) Requirement is irrelevant
Explanation: Communication anchors expectations.
Q299. Inflation control through global institutions requires:
✅ A) IMF and World Bank support for reforms
B) Ignoring institutions completely
C) Eliminating institutions
D) Requirement is irrelevant
Explanation: Institutions support inflation control.
Q300. Inflation control strategies overall show:
✅ A) Combination of monetary, fiscal, supply‑side, and global coordination is essential
B) Only monetary policy matters
C) Only fiscal policy matters
D) Strategies are irrelevant
Explanation: Comprehensive approach ensures stability.
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