MCQs Course for SEBI Grade A 2020 - Paper 2

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1. Match the following:

(i) Deflation (a) Reduction of Rate of Inflation

(ii) Stagflation (b) When there is a general fall in the level of prices.

(iii) Disinflation (c) combination of inflation and rising unemployment

due to recession.

A. 1-a, 2-b, 3-c

B. 3-a, 1-b, 2-c

C. 2-a, 3-b, 1-c

Answer: B

Deflation is a decrease in the general price level of goods and services.

Deflation occurs when the inflation rate falls below 0%.

Stagflation or recession-inflation is a situation in which the inflation rate is

high, the economic growth rate slows, and unemployment remains steadily
high.

Disinflation is a decrease in the rate of inflation – a slowdown in the rate of

increase of the general price level of goods and services in a nation's gross
domestic product over time.

2. Match the following:

(i) Creeping Inflation (a) out of control

(ii) Trotting Inflation (b) Manageable

(iii) Hyperinflation (c) Might accelerate into Galloping Inflation

A. 3-a, 1-b, 2-c

B. 1-a, 2-b, 3-c

C. 3-a, 2-b, 1-c

Answer: A

Creeping inflation is defined as the circumstance where the inflation of a

nation increases gradually, but continually, over time. The relatively small
effect of creeping inflation, when viewed long-term, actually adds up to a
pretty significant increase in the cost of living.

Trotting Inflation: When prices rise moderately and the annual inflation
rate is a single digit (3% - 10%), it is called walking or trotting inflation.
Inflation at this rate is a warning signal for the government to control it
before it turns into running inflation.

Hyperinflation is a term to describe rapid, excessive, and out-of-control

general price increases in an economy

3. Match the following:

1. GDP Deflator (a) measures the change in the prices received by a

producer.

2. PPI-Producer (b) measures the change in Price Index in the price of a

selection of goods at wholesale prior to retail sales excluding sales tax.

[Link] (c) combination of inflation and rising unemployment

due to recession.

A. 1-a, 2-b, 3-c

B. 3-a,1-b, 2-c

C. 2-a, 3-b, 1-c

Answer: C

The GDP price deflator measures the changes in prices for all of the goods
and services produced in an economy.
The Producer Price Index (PPI) program measures the average change over
time in the selling prices received by domestic producers for their output

The Wholesale Price Index is the price of a representative basket of

wholesale goods. Some countries use WPI changes as a central measure of
inflation. But India has adopted CPI to measure inflation.

4. Consider the following statements:

(1) Mild Inflation is seen as “greasing the wheels of commerce”.

(2) High Inflation will lead to an increase in the purchasing power of the
Income.

(3) Demand-pull Inflation is caused by an increase in the demand due to

increased private & Government spending etc.

A. All the above are correct

B Only 1 and 3 are correct

C. Only 2 is correct

D. Only 1 & 2 are correct

Answer: A

Mild Inflation is seen as “greasing the wheels of commerce”, whereas High

Inflation will lead to an increase in the purchasing power of the Income.
Demand-pull Inflation is caused by an increase in demand due to increased
private & Government spending.

5. Inflation is the state in which:

A. The value of money decreases

B. The value of money increases

C. The value of the money increases first and then decreases

D. The value of money decreases first and increases later

Answer: A

Price of currency decreases.

Inflation is a sustained increase in the general price level of goods and

services in an economy over a period of time. Low or moderate inflation
may be attributed to fluctuations in real demand for goods and services or
changes in available supplies such as during scarcities.

6. How inflation affects the price of commodities?

A. Price of the commodities decreases

B. Price of the commodities increases

C. No effect

D. First the price decreases later on increases

Answer: B

Prices of goods are increasing. Once inflation has driven up the price of the
commodity, it also impacts the value of the commodity in other ways. Once
the demand for oil increases because of the increased speculation, then the
price goes up even further. This means that inflation has a twofold impact
on the price of the commodity.

7. When there is high inflation in the economy, how will it affect the
supply of money in the economy?

A. No effect on the money supply

B. Supply of money decreases

C. Supply of money increases

D. None of the above

Answer: C

Supply of money increases.

Inflation occurs when there is a sustained increase in the general price
level. Traditionally high inflation rates are considered to be damaging to an
economy. High inflation creates uncertainty and can wipe away the value of
savings.

8. Which of the following classes will not be negatively affected by

higher inflation?

A. The consumer class

B. The debtor class

C. ThePensioner class

D. The Business class

Answer: D

The Business class will be richer by receiving the higher prices of the
commodities.

9. Which of the following can be defined as stagflation?

A. A situation in which the economy experiences a recession.

B. A situation in which the economy has inflation and recession altogether

C. An economy where unemployment is high

D. Both B and C

Answer: D

Stagflation refers to an economy that is experiencing a simultaneous

increase in inflation and stagnation of economic output. Stagflation was
first recognized during the 1970s, where many developed economies
experienced rapid inflation and high unemployment as a result of an oil
shock.

10. Who among the following compared the inflation with the robbers?

A. Professor Keynes
B. Professor Jagdish Bhagwati

C. Professor Brahmand and Wakeel

D. Amartya Sen and JK Mehta

Answer: C

Professor Brahmanand and Wakeel have compared the inflation to robbers.

Inflation, net of other economic conditions, had significant effects on
homicide, robbery, and burglary rates.

11. Who among the following wrote the book "How to pay for Money"?

A. Amartya Sen

B. Adam Smith

C. Karl Marx

D. Professor Keynes

Answer: D

Professor Keynes wrote the book "How to pay for money".

12. Which of the following concepts is just the opposite of deflation?

A. Stagflation

B. Inflation

C. Recession

D. Disinflation

Answer: B

Inflation refers to the increase in the price of the goods while deflation
means the decrease in the price of the goods.

13. Which of the following measures 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

Reduction in government expenditure reduces the supply of money in the

economy, which further reduces inflation.

14. What is the base year for measuring inflation at the Wholesale
Prices Index (WPI) in India?

A. 2004-05

B. 2001-02

C. 2011-12

D. 2014-15

Answer: C

The last base year for GDP, IIP, and consumer price index was revised to
2011-12 and 2012 (for inflation), Minister of Statistics and Programme
Implementation Sadananda Gowda said here today. "The revisions
facilitated a more accurate assessment of the progress of the economy and
society.

15. Which of the following is a reason for inflation?

A. Deficit financing

B. Growth in per capita income

C. Structural deficiencies

D. All the above

Answer: D

Inflation refers to a rise in the general price level in the economy. Various
demand and supply-side factors cause inflation.

16. The maximum inflation at _____ was recorded for the year 1966-67 :

A. 12.1

B. 13.9

C. 8.0

D. 7.6

Answer: B

The maximum inflation at 13.9 percent was recorded for the year 1966-67,
but the minimum inflation rate of (-) 1.1 percent was in 1968-69 attributed
primarily to the bumper agricultural production in the preceding year.

17. 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 the above

Answer: D

Inflation erodes purchasing power. When the general price level of goods
and services goes up, that means the purchasing power of your rupee goes
down. It's called inflation, and it can really eat away at your future
purchasing power.

18. Consider the following statements. Which is correct?

1. The government can reduce indirect taxes to control inflation

2. There is a trade-off between growth and inflation in India

A. 1 Only

B. 2 Only

C. Both 1 & 2 Only

D. None of the

Answer: C

The Government can make use of taxation to control inflation. Increases in

taxes reduce disposable income with consumers.

There is a trade-off between growth and inflation in India.

19. Which of the following is not a reason for inflation?

A. Increase in administered prices

B. Increase in cost of capital

C. More dependence on indirect taxes for revenue

D. None of these

Answer: D

Inflation is a sustained increase in the general price level of goods and

services in an economy over a period of time.

20. 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 of credit

D. All the above

Answer: D
Inflation can be controlled using monetary, fiscal, and other measures.
Methods to Control Inflation

Monetary policy – Higher interest rates reduce demand in the economy,

leading to lower economic growth and lower inflation.

Control of money supply – Monetarists argue there is a close link between

the money supply and inflation, therefore controlling money supply can
control inflation.

21. Which group constitutes maximum weightage in WPI?

A. Primary articles

B. Fuel

C. Manufactured items

D. Equal weightage

Answer: C

Under the primary article group of the new WPI, there are 117 items
against earlier 98, while the fuel and power category remains static at 16. In
the new series, there are 564 items of manufactured products compared to
318 items earlier. The indicator tracks the price movement of each
commodity individually.