UPSC CSE Prelims
Inflation Previous Year Questions (PYQs)
Showing solved Previous Year Questions for Chapter: Inflation
Topic Breakdown: Scroll →
Consider the following statements:
- The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
- The WPI does not capture changes in the prices of services, which CPI does.
- Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.
Which of the statements given above is/are correct?
Detailed Explanation:
Answer: Option 1 — 1 and 2 only
This question tests understanding of the structural differences between CPI and WPI, and the RBI's monetary policy framework. Statements 1 and 2 correctly identify key distinctions between these price indices, while Statement 3 contains a factual error about RBI's policy choice.
✅ Statement 1 – Correct: Food and Beverages constitute approximately 45.86% of the CPI (Combined, Base Year 2012), whereas food items account for only about 24.38% of the WPI (Base Year 2011-12), reflecting the higher weightage of food in CPI.
✅ Statement 2 – Correct: The WPI measures prices of goods at the wholesale level and excludes services entirely, while the CPI captures price changes in both goods and services (healthcare, education, transportation, recreation) as consumed by households.
❌ Statement 3 – Incorrect: Following the Urjit Patel Committee recommendations, the RBI officially adopted CPI (Combined) as its primary measure of inflation for monetary policy and interest rate decisions in April 2014, not WPI.
With reference to inflation in India, which of the following statements is correct?
Detailed Explanation:
✅ Statement 3 – Correct: Decreased money circulation (contractionary monetary policy) reduces aggregate demand and liquidity in the economy, which helps control demand-pull inflation.
❌ Statement 1 – Incorrect: Controlling inflation is a joint responsibility of both the Government of India (fiscal policy, supply-side measures) and the Reserve Bank of India (monetary policy).
❌ Statement 2 – Incorrect: The RBI plays a central role through the Monetary Policy Committee (MPC), which adjusts policy rates (Repo rate) to maintain the inflation target of 4% ± 2% under the RBI Act, 1934.
❌ Statement 4 – Incorrect: Increased money circulation raises aggregate demand, which if not matched by supply, leads to demand-pull inflation.
Which of the following brings out the ‘Consumer Price Index Number for Industrial Workers’?
Detailed Explanation:
The Labour Bureau, under the Ministry of Labour and Employment, compiles and publishes the Consumer Price Index Number for Industrial Workers (CPI-IW).
The Labour Bureau also maintains CPI for Rural Labourers and CPI for Agricultural Labourers, while the Ministry of Statistics and Programme Implementation (MOSPI) publishes the general CPI and CPI for rural/urban areas.
🧐 Not Sure What to Study Next?
Get a personalised study plan based on your goals, time and revision needs.
Consider the following statements :
- Inflation benefits the debtors.
- Inflation benefits the bondholders.
Which of the statements given above is/are correct?
Detailed Explanation:
✅ Statement 1 – Correct: Inflation erodes the real value of money. Debtors repay loans with money that has less purchasing power than when borrowed, reducing their real debt burden.
❌ Statement 2 – Incorrect: Bondholders receive fixed nominal payments. During inflation, the real value of these payments falls, causing bondholders to lose purchasing power.
A rise in the general level of prices may be caused by:
- an increase in the money supply
- a decrease in the aggregate level of output
- an increase in the effective demand
Select the correct answer using the codes given below.
Detailed Explanation:
✅ Statement 1 – Correct: An increase in money supply without corresponding increase in output leads to more money chasing fewer goods, causing demand-pull inflation as per the Quantity Theory of Money.
✅ Statement 2 – Correct: A decrease in aggregate output/supply while demand remains constant creates excess demand, pushing prices upward through supply-side inflation.
✅ Statement 3 – Correct: An increase in effective demand (purchasing power-backed demand) beyond the economy's productive capacity causes demand-pull inflation.