Which of the following statements shows an accurate understanding of a macroeconomic concept?
When the general price level rises, the value of money tends to fall.
When the general price level rises (inflation), each unit of money buys fewer goods and services, so the purchasing power or value of money falls. Thus value of money and price level move in opposite directions.
GDP counts production within a country's borders; earnings sent home by citizens working abroad are part of net factor income from abroad and are included in GNP, not GDP.
A balanced budget means government revenue equals government expenditure; exports exceeding imports is a trade surplus.
A central bank such as the RBI controls inflation through monetary tools like the repo rate, CRR and open market operations; income tax rates are a fiscal tool of the government.
Hence, the accurate statement is that when the general price level rises, the value of money tends to fall.
Important Questions from Inflation
India has experienced persistent and high food inflation in the recent past. What could be the reasons?
1) Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
2) As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3) The food supply chain has structural constraints.
Which of the statements given above are correct?
A rapid increase in the rate of inflation is sometimes attributed to the "base effect". What is "base effect”?
Consider the following statements:
1. Inflation benefits the debtors.
2. Inflation benefits the bond-holders.
Which of the statements given above is/are correct?
Which one of the following is likely to be the most inflationary in its effect?
Hill Area Development Programmes were initiated during the _____________ Year Plan covering 15 districts.
