Class 10 Inflation Mock Test (ICSE)

Topics in Inflation

• Meaning of inflation
• WPI, CPI and food basket
• Stages of inflation
• Cost-push and demand-pull inflation
• Effects of inflation and control measures

Inflation practice questions with answers

1. Q1Multiple choice·1 mark
   The Consumer Price Index (CPI) differs primarily from the Wholesale Price Index (WPI) because CPI measures changes in prices of goods and services purchased by:

   1. (a)Consumers at the retail level
   2. (b)Government bodies for public infrastructure projects
   3. (c)Exporters in the international market
   4. (d)Producers at the wholesale stage
   Show answer and step marks

   1. Correct option: (a) Consumers at the retail level+1

   Answer: (a)
2. Q2Multiple choice·1 mark
   During a period of inflation, which of the following groups typically stands to benefit the most?

   1. (a)Fixed-income earners
   2. (b)Holders of cash and liquid savings
   3. (c)Creditors lending money at a fixed rate of interest
   4. (d)Debtors who have borrowed money at a fixed rate of interest
   Show answer and step marks

   1. Correct option: (d) Debtors who have borrowed money at a fixed rate of interest+1

   Answer: (d)
3. Q3Multiple choice·1 mark
   Inflation is best defined as a situation characterized by:

   1. (a)A continuous fall in the output of goods and services
   2. (b)An increase in the purchasing power of money over time
   3. (c)A persistent and appreciable rise in the general price level of goods and services
   4. (d)A temporary rise in the price of a single commodity
   Show answer and step marks

   1. Correct option: (c) A persistent and appreciable rise in the general price level of goods and services+1

   Answer: (c)
4. Q4Multiple choice·1 mark
   Which stage of inflation is characterized by a very slow and gradual rise in prices, often considered mild or even beneficial for economic growth?

   1. (a)Creeping inflation
   2. (b)Running inflation
   3. (c)Hyperinflation
   4. (d)Galloping inflation
   Show answer and step marks

   1. Correct option: (a) Creeping inflation+1

   Answer: (a)
5. Q5Long answer·4 marks
   Inflation has far-reaching consequences on various sections of the economy and necessitates prompt remedial actions. (a) Explain two adverse effects of inflation on fixed-income earners. (b) State two monetary measures that the central bank can implement to control inflation.
   Show answer and step marks

   1. (a) First adverse effect explained, any one of: their real income and purchasing power fall because their money income stays the same while prices rise; their standard of living falls as they must cut consumption; the real value of their savings, pensions and fixed deposits falls; they find it hard to save as more of their income goes on necessities; inequality widens as they lose while profit earners gain; or any other valid effect.+1
   2. (a) Second adverse effect explained, a different one from the same list.+1
   3. (b) First monetary measure, any one of: raising the bank rate or repo rate, which makes borrowing costlier; selling government securities through open market operations to absorb excess money; raising the cash reserve ratio (CRR); raising the statutory liquidity ratio (SLR); selective credit controls such as higher margin requirements, credit rationing or moral suasion; or any other valid monetary measure.+1
   4. (b) Second monetary measure, a different one from the same list.+1

   Answer: (a) Any two of: fall in real income and purchasing power; fall in standard of living; fall in the real value of savings and pensions; difficulty in saving; widening inequality. (b) Any two of: raising the bank rate or repo rate; open market sale of securities; raising CRR; raising SLR; selective credit controls.

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