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Currency and Inflation
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1. Which of the following are definite implications of a fall in inflation?
1. Prices have fallen
2. Prices are increasing more slowly than before
3. Food supply has increased
4. There is industrial stagnation
(a) 1 and 3
(b) 1 only
(c) 2 only
(d) 1, 3 and 4
Ans: (c)
2. Among the causes of inflation can be listed:
1. slow growth in agricultural output
2. increasing non-development expenditure of Government
3. rapid population growth
4. rapid growth in costly imports
(a) 1 and 2
(b) 2 and 3
(c) 1, 2, 3 and 4
(d) 1 and 4 only
Ans: (c)
3. Among the remedies of inflation we cannot include:
(a) better capacity utilisation
(b) lowering bank rate
(c) reducing budgetary deficit
(d) an efficient public distribution system
Ans: (b)
4. A very rapid growth in prices in which money loses its value to the point where even
barter may be preferable is known as:
(a) inflation
(b) hyper-inflation
(c) deflation
(d) disinflation
Ans: (b)
5. Inflationary Gap is a situation characterized by:
(a) excess of Aggregate Demand over Aggregate Supply at the full employment level
(b) gap between Galloping Inflation and Runaway Inflation
(c) Inflation coupled with recession
(d) Inflation that usually prevails in a developing country
Ans: (a)
6. Which of the following is wrongly matched?
(a) Depression: Insufficient demand causing large scale unemployment of men and
machinery over a long period of time
(b) Recession: Reduction in demand and production/ investment over a short period of time
(c) Stagflation: slow pace of economic activity due to falling prices
(d) Boom: Rapid and all-round spurt in economic activity
Ans: (c)
7. The cause of inflation is:
(a) increase in money supply
(b) fall in production
(c) increase in money supply and fall in production
(d) decrease in money supply and fall in production
Ans: (c)
8. Who among the following is most benefitted from inflation? [IAS 1989]
(a) Government pensioners
(b) Creditors
(c) Savings Bank Account holders
(d) Debtors
Ans: (d)
9. Which of the following groups suffer the most from inflation? [CPO SI 2003]
(a) Debtors
(b) Creditors
(c) Business class
(d) Holders of real assets
Ans: (b)
10. Minimum inflation in post economic reform was in :
(a) 1999-2000
(b) 2000-01
(c) 2001-02
(d) 2002-03
Ans: (a)
11. Inflation is caused as a result of:
(a) increase in money supply
(b) fall in production
(c) increase in money supply without a corresponding increase in production
(d) decrease in money supply without a corresponding decrease in production
Ans: (c)
12. Which of the following accounts for Cost-Push Inflation?
(a) Increase in money supply
(b) Increase in indirect taxation
(c) Increase in population
(d) Increase in non-plan expenditure
Ans: (b)
13. The inflation experienced in the country at present is:
(a) galloping inflation
(b) secondary inflation
(c) unrealistic inflation
(d) cost-push inflation
Ans: (d)
14. Which of the following governmental steps has proved relatively effective in controlling
the double digit rate of inflation in the Indian economy during recent years?
(a) Containing budgetory deficits and unproductive expenditure
(b) Streamlined public distribution system
(c) Enhanced rate of production of all consumer goods
(d) Pursuing an export-oriented strategy
Ans: (a)
15. Of the various ways of financing government's investment expenditure, the least
inflationary is : [PCS 1994]
(a) foreign aid
(b) deficit financing
(c) taxation
(d) public borrowing
Ans: ©
16. 'Devaluation' means: [RRB 1992]
(a) converting rupee into gold
(b) lowering of the value of one currency in comparison of some foreign currency
(c) making rupee dealer in comparison to some foreign currency
(d) None of these
Ans: (b)
17. Monetary policy is regulated by:
(a) money lenders
(b) Central Bank
(c) private entrepreneurs
(d) Government policy
Ans: (b)
18. One-rupee currency notes bear the signature of:
(a) Prime Minister of India
(b) President of India
(c) Finance Minister of India
(d) Finance Secretary of India
Ans: (d)
19. Ten rupee notes bear the signature of:
(a) President
(b) Finance Minister
(c) Secretary, Ministry of Finance
(d) Governor, Reserve Bank of India
Ans: (d)
20. When was the decimal system of currency introduced in India?
(a) 1948
(b) 1950
(c) 1954
(d) 1957
Ans: (d)
21. Which of the following prints currency notes of the denomination of Rs. 100?
(a) The Bank Note Press, Dewas
(b) The Indian Security Press, Nasik Road
(c) The Security Printing Press, Hyderabad
(d) All of the above
Ans: (a)
22. The highest denomination of currency notes in circulation as legal tender in India is at
present:
(a) Rs. 50
(b) Rs.100
(c) Rs. 500
(d) Rs.1000
Ans: (d)
23. The special paper required for printing of currency notes by the Security Presses In the
country is manufactured at :
(a) Hyderabad
(b) Kolkata
(c) Hoshangabad
(d) Dewas
Ans: (c)
24. Which of the following mints undertakes refining of gold for licensed gold dealers and
production of medals for defence services?
(a) The Hyderabad Mint
(b) The Mumbai Mint
(c) The Kolkata Mint
(d) None of the above
Ans: (b)
25. To meet the growing needs for coins in the country, where does the Government
propose to set up another mint?
(a) Nasik
(b) Hoshangabad
(c) Dewas
(d) Noida
Ans: (d)
26. For international payments, the Indian currency is linked to :
(a) American Dollar
(b) British Sterling
(c) Gold Standard
(d) None of the above
Ans: (a)
27. How many languages are used on a ten rupee note?
(a) 2
(b) 7
(c) 10
(d) 15
Ans: (d)
28. Convertibility of the rupee implies: [IAS 1994]
(a) being able to convert rupee notes into gold
(b) freely permitting the conversion of rupee to other major currencies and vice versa
(c) allowing the value of the rupee to be fixed by market forces
(d) developing an international market for currencies in India
Ans: (b)
29. Black money is :
(a) counterfeit currency
(b) illegally earned money
(c) money earned through underhand deals
(d) income on which payment of tax is usually evaded
Ans: (d)
30. Broad money in India is :
(a) M1
(b) M2
(c) M3
(d) M4
Ans: (c)
31. The Issue Department of the RBI maintains a _______ against printing of notes:
(a) Minimum Reserve System
(b) Proportional Reserve System
(c) Proportional Gold Reserve System
(d) Proportional Foreign Securities Reserve System
Ans: (a)
32. Devaluation of currency by a country is meant to lead to :
1. expansion of import trade
2. promotion of import substitution
3. expansion of export trade
(a) 1 only
(b) 2 and 3
(c) 1 and 2
(d) 1 and 4
Ans: (b)
33. Which of the following is incorrect about convertibility?
(a) The exchange rate should be determined by the forces of demand and supply of the
currency
(b) The exchange rate' would indicate the strength of the economy
(c) It would discourage black market transactions
(d) The RBI will be a direct player now rather than being an indirect one
Ans: (d)
34. The States' debt does not include:
(a) loans from State Bank of India
(b) loans from the Central Government
(c) Provident Funds
(d) treasury bills issued to international financial institutions
Ans: (d)
35. Consider the following statement:
The price of any currency in international market is determined by the:
1. WTO
2. Demand for goods/services provided by the country concerned
3. Inflation differential between the country concerned and its major trading partners
4. Stability of the government of the concerned country
Of these statements:
(a) 1, 2, 3, and 4 are correct
(b) 1, 2 and 4 are correct
(c) 1, 3 and 4 are correct
(d) 2, 3 and 4 are correct
Ans: (d)
36. Hard Currency is defined as currency:
(a) which can hardly be used for international transactions
(b) which is used in times of war
(c) which loses its value very fast
(d) traded in foreign exchange market for which demand is persistently relative to the supply
Ans: (d)
37. The Indian Rupee is fully convertible:
1. In respect of Current Account of Balance of Payments
2. In respect of Capital Account of Balance of Payments
3. Into Gold
Which of these statements is/are correct ?
(a) 1 only
(b) 3 only
(c) 1 and 2 only
(d) 1, 2 and 3
Ans: (a)
38. Consider the following statements:
The price of any currency in international market is decided by the [IAS 1998]
1. World Bank
2. Demand for goods/services provided by the country concerned
3. stability of the government of the concerned country
4. economic potential of the country in question
Of these statements:
(a) 1, 2, 3 and 4 are correct
(b) 2 and 3 are correct
(c) 3 and 4 are correct
(d) 1 and 4 are correct
Ans: (b)
39. Inflation implies: [Railways 1994]
(a) rise in budget deficit
(b) rise in money supply
(c) rise in general price index
(d) rise in prices of consumer goods
Ans: (c)
40. The situation with increasing unemployment and inflation is termed as: [CPO AC 2003]
(a) hyperinflation
(b) galloping inflation
(c) stagflation
(d) reflation
Ans: (c)
41. Which of the following factors contributes to an inflationary trend?
(a) 15% fall in production of industrial goods
(b) 15% increase in prices of agricultural products
(c) 15% increase in supply of money in the market
(d) none of these
Ans: (c)
42. Which of the following can be used for checking inflation temporarily?
(a) Increase in wages
(b) Decrease in money supply
(c) Decrease in taxes
(d) None of the above
Ans: (b)
43. Who among the following are not protected against inflation.? [Railways 1992]
(a) Salaried class
(b) Industrial workers
(c) Pensioners
(d) Agricultural farmers
Ans: (d)
44. An essential attribute of inflation is:
(a) fall in production
(b) increase in prices
(c) absence of black market
(d) presence of black market
Ans: (b)
45. The best means of saving during inflation is to keep:
(a) money
(b) Government Bonds
(c) equity
(d) time deposits with Banks
Ans: (a)
46. The period of high inflation and low economic growth is termed as: [RRB 1992]
(a) stagnation
(b) take-off stage in economy
(c) stagflation
(d) none of these
Ans: (c)
47. Stagflation implies a case of: [CDS 1992]
(a) galloping inflation
(b) recession plus inflation
(c) adverse balance of trade
(d) rising wages and employment
Ans: (b)
48. Inflation can be contained by:
(a) surplus budget
(b) increase in taxation
(c) reduction in public expenditure
(d) all the above
Ans: (d)
49. Deficit financing creates additional paper currency to fill the gap between expenditure
and revenue. This device aims at economic development but if it fails, it generates :
[IFS 1990]
(a) inflation
(b) devaluation
(c) deflation
(d) demonetization
Ans: (a)
50. A steady increase in the general level of prices as a result of excessive increase in
aggregate demand as compared to aggregate supply is termed as : [CDS 1999]
(a) demand-pull inflation
(b) cost-push inflation
(c) stagflation
(d) structural inflation
Ans: (a)
51. A high rate of inflation tends to worsen balance of payments because:
(a) prices of imported goods rise
(b) prices of exported goods rise making exports less competitive
(c) prices of imported goods fall and hence more is imported
(d) prices of exported goods fall and hence less amount is obtained in terms of foreign
exchange
Ans: (b)
52. The effect of inflation on tax revenue results in a situation known as :
(a) stagflation
(b) fiscaldrag
(c) reflation
(d) disinflation
Ans: (b)
53. The sum of which of the following constitutes Broad Money in India? [IAS 1997]
1. Currency with the public
2. Demand deposits with banks
3. Time deposits with banks
4. Other deposits with RBI
Choose the correct answer using the codes given below:
(a) 1 and 2
(b) 1, 2 and 3
(c) 1, 2, 3 and 4
(d) 1, 2 and 4
Ans: (c)
54. Rising prices lead to all but one of the following:
(a) promotion of inequalities
(b) generation of black money
(c) adverse effect on balance of payments
(d) adverse effect on speculation
Ans: (d)
55. Consider the following statements about Wholesale Price Index (WPI) :
1. It captures the price movement extensively and is, therefore, taken as an indicator of
inflation.
2. The office of the Economic adviser (OEA) is entrusted with the function of compilation
and publication of the weekly wholesale price index number in India.
Which of the statements given above is/are correct? [CDS 2009]
(a) I only
(b) II only
(c) Both I and II
(d) Neither I nor II
Ans: (c)
56. In the last one decade, which one among the following sectors has attracted the highest
Foreign Direct Investment inflows into India? [IAS 2004]
(a) Chemicals other than fertilizers
(b) Services sector
(c) Food processing
(d) Telecommunication
Ans: (d)
57. Under the Constitution, the power to raise and disburse public funds:
(a) has been vested in Union Government
(b) has been divided between the Union and State Governments
(c) has been given to the Finance Commission
(d) has not been given to anyone
Ans: (b)
58. There are three major groups of commodities in the Wholesale Price Index. These are:
1. primary articles
2. fuel, power, light and lubricants
3. manufactured products
4. food articles and industrial raw materials
(a) 1, 2 and 3
(b) 2, 3 and 4
(c) 1, 3 and 4
(d) 1 and 3
Ans: (a)
59. Rupee was devalued by what percent in July 1991 ? [MP PCS 1990]
(a) 18
(b) 20
(c) 22
(d) 25
Ans: (b)
60. When was decimal coinage introduced in India? [CDS 2005]
(a) 1947
(b) 1950
(c) 1957
(d) 1960
Ans: (c)
61. Amongst the currency quotes USD/JPY, USD/Euro and USD/CAD, which one of the
following is referred as the base currency for quotes? [Punjab & Sindh Bank 2011]
(1) US $
(2) JPY
(3) Euro
(4) CAD
(5) None of these
Ans: (1)
62. Which of the following is/are treated as artificial currency? [IAS 2010]
(a) ADR
(b) GDR
(c) SDR
(d) Both ADR and SDR
Ans: (c)
63. Which of the following measures should be taken when an economy is going through
inflationary pressures?
1. The direct taxes should be increased.
2. The interest rate should be reduced.
3. The public spending should be increased
Select the correct answer using the code given below: [CDS 2012]
Code:
(a) 1 only
(b) 2 only
(c) 2 and 3
(d) 1 and 2
Ans: (b)
64. The terms of economics, the recession occurring two times with a small gap in between
is known as [Bank of India PO 2010]
(1) Double Deflation
(2) Deflation
(3) Deep Recession
(4) Double Dip Recession
(5) None of these
Ans: (3)
65. M1 includes:
(a) currency with public
(b) demand deposit with bank
(c) other deposits with RBI
(d) all of the above
Ans: (d)
66. M3 includes:
(a) M1 + T.D
(b) M1 + post office saving deposit
(c) M1 +- post office total deposit
(d) M1 + national saving certificate
Ans: (a)
67. Consider the following statements:
Full convertibility of the rupee may mean: [IAS 2002]
1. its free float with other international currencies.
2. its direct exchange with any other international currency at any prescribed place inside and
outside the country.
3. it acts just like any other international currency.
Which of these statements are correct?
(a) 1 and 2
(b) 1 and 3
(c) 2 and 3
(d) 1, 2 and 3
Ans: (a)
68. Which of the following Mahatma Gandhi series of currency notes issued by the RBI has
a drawing of the 'Parliament House' depicted on it? [SSC Graduate 2003]
(a) Rs. 500
(b) Rs. 100
(c) Rs. 50
(d) Rs. 10
Ans: (c)
69. Which of the following Mahatma Gandhi series of currency notes issued by the RBI has
"ecology" depicted on it? [SSC Graduate 2003]
(a) Rs. 500
(b) Rs. 100
(c) Rs. 50
(d) Rs. 5
Ans: (b)
70. Match the following:
A. Partial convertibility I. Unified exchange rate, applied for export and import of goods only, i.e.,
visible transaction of BoP
B. Convertibility on trade account II. Currency can be converted on all accounts
C. Convertibility on current account III. 60% of the foreign exchange to be converted at market rates
and rest at official rate
D. Full convertibility IV. Full convertibility in all visible and invisible transaction of goods and
services
A B C D
(a) I II III IV
(b) IV II I III
(c) III I IV II
(d) I IV III II
Ans: ©
