SSC CGL Preparation – Day 7

MCQs – Inflation & Interest Rates

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1. Which index is used by the Reserve Bank of India to measure retail inflation?

A. WPI
B. CPI
C. GDP Deflator
D. IIP

Answer: ✅ B. CPI
Explanation: The RBI uses Consumer Price Index (CPI) as the benchmark for inflation targeting.

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2. What is the current inflation target set by the RBI under the Monetary Policy Framework?

A. 3% ± 2%
B. 5% ± 1%
C. 4% ± 2%
D. 6% ± 1%

Answer: ✅ C. 4% ± 2%
Explanation: The RBI aims to keep CPI inflation at 4%, with a tolerance range of 2% to 6%.

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3. If the nominal interest rate is 7% and inflation is 3%, what is the real interest rate?

A. 4%
B. 10%
C. 3%
D. 7%

Answer: ✅ A. 4%
Explanation: Real Interest Rate = Nominal Rate − Inflation = 7% − 3% = 4%

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4. Which of the following is a tool used by RBI to control inflation?

A. Income tax
B. Repo Rate
C. Customs Duty
D. Subsidies

Answer: ✅ B. Repo Rate
Explanation: Repo Rate is a monetary policy tool used by the RBI to regulate money supply and inflation.

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5. What does ‘Cost-Push Inflation’ refer to?

A. Inflation due to excessive demand
B. Increase in supply of goods
C. Inflation caused by rising production costs
D. Decrease in government spending

Answer: ✅ C. Inflation caused by rising production costs
Explanation: Cost-push inflation occurs due to increased prices of inputs like wages or raw materials.

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6. Which rate is the rate at which the RBI lends money to commercial banks?

A. Bank Rate
B. Reverse Repo Rate
C. Repo Rate
D. Base Rate

Answer: ✅ C. Repo Rate
Explanation: Repo Rate is the interest rate at which RBI lends short-term funds to banks.

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7. Which of the following best describes ‘Stagflation’?

A. Low inflation with high unemployment
B. High inflation with low growth and high unemployment
C. No inflation and high growth
D. Inflation due to technological growth

Answer: ✅ B. High inflation with low growth and high unemployment
Explanation: Stagflation is a situation where inflation and unemployment are high, but economic growth is low.

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8. What does ‘Disinflation’ mean?

A. Negative inflation
B. Increasing inflation
C. Declining rate of inflation
D. Stable inflation

Answer: ✅ C. Declining rate of inflation
Explanation: Disinflation refers to a slowdown in the rate of inflation, prices are still rising but more slowly.

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9. Who heads the Monetary Policy Committee (MPC) in India?

A. Finance Minister
B. RBI Deputy Governor
C. Economic Advisor
D. RBI Governor

Answer: ✅ D. RBI Governor
Explanation: The MPC is headed by the Governor of RBI who also casts the deciding vote in case of a tie.

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10. If inflation is very high and persistent, it is referred to as:

A. Hyperinflation
B. Deflation
C. Stagflation
D. Reflation

Answer: ✅ A. Hyperinflation
Explanation: Hyperinflation refers to an extremely high and typically accelerating inflation rate.