Inflation

Answer:- 2. Increase in the general price level of goods and services

Explanation:- Inflation refers to a sustained rise in the average price of goods and services over a period, typically measured annually. It leads to a gradual loss of purchasing power, meaning that money buys fewer goods and services as time passes. Price indices like the Consumer Price Index (CPI) or Wholesale Price Index (WPI) measure this rise.

Answer:-  3. Both a) and b). 

Explanation:-  India uses two primary indices to measure inflation: WPI, which tracks price changes at the wholesale level, and CPI, which reflects retail price changes experienced by consumers. Both indices play a major role in economic policy formulation. WPI is often considered for policy decisions, whereas CPI is crucial for understanding the effect on households.

Answer:-  2. Inflation caused by excess demand over supply. 

Explanation:-   Demand-pull inflation happens when demand for goods and services outstrips supply, leading to a rise in prices. Factors like increased consumer spending, government expenditure, or loose monetary policy can trigger it. Producers respond to excess demand by raising prices to balance demand with limited supply.

Answer:-  2. Inflation resulting from increased production costs. 

Explanation:-   Cost-push inflation occurs when rising costs of inputs—such as wages, raw materials, or energy—compel businesses to increase their prices to maintain profits. This type of inflation is often seen during periods of supply shocks or when international commodity prices rise sharply, as with oil or food items.

Answer:-  2. Stagflation. 

Explanation:-  Stagflation is a rare phenomenon characterized by high inflation along with stagnant or negative economic growth and high unemployment. This situation is particularly problematic for policymakers, as traditional tools to reduce inflation may worsen unemployment and vice versa.

Answer:-  2. Extremely rapid and out-of-control prices  increases. 

Explanation:-  Hyperinflation denotes a scenario where prices increase at exponential rates, drastically eroding the value of money. It is often caused by excessive money supply, loss of confidence in the currency, or severe disruptions like war or regime change. 

Answer:-  2. Technological advancement improving productivity​. 

Explanation:-   Technological advancement typically reduces production costs and thereby can lower prices, counteracting inflation. Other options like money supply increase, heightened demand, or supply chain disruptions generally push prices upward, fueling inflation.

Answer:-  2.  Rising wages lead to higher prices, which then prompt further wage increases. 

Explanation:-   The wage-price spiral describes a feedback cycle: rising prices cause workers to demand higher wages, and when wages rise, businesses often raise prices further to maintain profit margins. This can sustain or even accelerate inflation without external shocks.

Answer:-  3. Reduction in the real value of money and purchasing power. 

Explanation:-    As prices rise steadily, consumers can afford to buy less with the same amount of money—this is called erosion of purchasing power. This effect is felt most acutely by people with fixed incomes and savings, since their real value diminishes over time.

Answer:-  3.Redistributes income and wealth, often hurting fixed earners and lenders. 

Explanation:-    Inflation can have redistributive effects: borrowers may benefit since debts are repaid with less valuable money, while lenders and people on fixed incomes lose purchasing power. Asset holders may gain if asset prices rise with inflation, while wage earners with slow salary adjustments fall behind.

Answer:-  2. Disinflation. 

Explanation:-   Disinflation refers to a slowdown in the rate of inflation—prices are still rising, but at a lesser rate. It is seen as a positive sign that inflation is being brought under control. Other measures like reducing money supply or tightening monetary policy are also used to achieve disinflation.

Answer:-  2. Increase in Price of Imported Oil. 

Explanation:-   Imported inflation occurs when the price of imported goods, such as oil or essential raw materials, rises—this leads to higher production costs domestically and ultimately higher overall inflation. Currency depreciation can amplify this impact by making imports costlier.

Answer:-  2. Reserve Bank of India. 

Explanation:-  The RBI uses tools like repo rate adjustments, open market operations, and statutory reserve ratios to regulate money supply and influence price stability. Its core mandate includes maintaining price stability and controlling inflation within targeted limits.