Q.1 What is inflation?
A sustained fall in the general price level
A sustained rise in the general price level
An increase in unemployment
A fall in the value of exports
Explanation - Inflation is defined as a persistent increase in the overall level of prices in an economy over time.
Correct answer is: A sustained rise in the general price level
Q.2 Which of the following best describes deflation?
A persistent increase in price levels
A temporary decrease in one product’s price
A persistent decrease in price levels
An increase in production
Explanation - Deflation refers to a general and sustained decrease in the overall price level of goods and services.
Correct answer is: A persistent decrease in price levels
Q.3 Which index is most commonly used to measure inflation?
Consumer Price Index (CPI)
Gross Domestic Product (GDP)
Balance of Payments
Unemployment Rate
Explanation - The CPI tracks changes in the price of a basket of goods and services consumed by households and is widely used to measure inflation.
Correct answer is: Consumer Price Index (CPI)
Q.4 What does demand-pull inflation occur due to?
Excess demand over supply
Rising unemployment
Excess supply over demand
Decline in production costs
Explanation - Demand-pull inflation happens when aggregate demand exceeds aggregate supply, pushing prices upward.
Correct answer is: Excess demand over supply
Q.5 Which of the following is a cause of cost-push inflation?
Decrease in wages
Increase in production costs
Excess supply of goods
Stable input prices
Explanation - Cost-push inflation arises when the cost of production inputs rises, leading firms to increase prices.
Correct answer is: Increase in production costs
Q.6 Hyperinflation refers to:
Inflation rate below 2%
A moderate increase in prices
Extremely high and rapid inflation
Negative inflation
Explanation - Hyperinflation is when prices rise uncontrollably at very high rates, often more than 50% per month.
Correct answer is: Extremely high and rapid inflation
Q.7 Deflation can be harmful because:
It reduces the value of money
It increases consumer spending
It discourages borrowing and investment
It lowers unemployment
Explanation - During deflation, people delay spending, and firms reduce investments, which can slow down economic growth.
Correct answer is: It discourages borrowing and investment
Q.8 Which of the following is NOT a type of inflation?
Demand-pull inflation
Cost-push inflation
Stagflation
Trade inflation
Explanation - Trade inflation is not recognized as a standard type; stagflation, demand-pull, and cost-push are widely accepted types.
Correct answer is: Trade inflation
Q.9 Stagflation is a situation where:
High inflation and high unemployment occur together
Low inflation with high growth occurs
Only prices rise but jobs increase
Deflation happens alongside growth
Explanation - Stagflation is when an economy faces stagnant growth, high unemployment, and high inflation simultaneously.
Correct answer is: High inflation and high unemployment occur together
Q.10 Which of these groups benefits from inflation?
Creditors
Debtors
Fixed income earners
Savers
Explanation - Debtors benefit since the real value of their debt decreases with inflation, making repayment easier.
Correct answer is: Debtors
Q.11 Which type of inflation is considered beneficial for economic growth?
Hyperinflation
Mild inflation
Deflation
Stagflation
Explanation - Mild inflation encourages spending and investment, stimulating economic growth.
Correct answer is: Mild inflation
Q.12 Which policy is best suited to control inflation?
Expansionary fiscal policy
Expansionary monetary policy
Contractionary monetary policy
Laissez-faire policy
Explanation - Raising interest rates and reducing money supply help control inflationary pressures.
Correct answer is: Contractionary monetary policy
Q.13 Which of the following can directly lead to deflation?
Increase in aggregate demand
Fall in aggregate demand
Increase in wages
Increase in government spending
Explanation - Deflation often occurs when aggregate demand decreases, leading to a fall in prices.
Correct answer is: Fall in aggregate demand
Q.14 Which institution in most countries is responsible for controlling inflation?
Parliament
Central Bank
Supreme Court
Trade Union
Explanation - The central bank regulates money supply and interest rates to control inflation.
Correct answer is: Central Bank
Q.15 What is the opposite of inflation?
Deflation
Stagflation
Disinflation
Recession
Explanation - Deflation is the sustained fall in the general price level, opposite to inflation.
Correct answer is: Deflation
Q.16 What is disinflation?
Falling inflation rate but still positive
Negative inflation
Increase in inflation rate
No inflation at all
Explanation - Disinflation means the rate of inflation slows down but remains above zero.
Correct answer is: Falling inflation rate but still positive
Q.17 Which of the following goods are most affected by inflation?
Luxury goods
Basic necessities
Imported goods
Public goods
Explanation - Prices of food and basic necessities rise quickly, impacting consumers most during inflation.
Correct answer is: Basic necessities
Q.18 In which decade did Zimbabwe experience hyperinflation?
1960s
1980s
2000s
2010s
Explanation - Zimbabwe faced extreme hyperinflation in the late 2000s, with prices doubling rapidly.
Correct answer is: 2000s
Q.19 Inflation erodes the:
Nominal value of money
Real value of money
Face value of money
Gold reserves
Explanation - While money keeps its nominal value, its purchasing power (real value) declines with inflation.
Correct answer is: Real value of money
Q.20 Which of the following is an example of demand-pull inflation?
Oil price hike increases costs
Consumers increase demand for housing
Increase in wage levels
Higher taxes increase prices
Explanation - When consumers' demand rises beyond supply, prices increase—this is demand-pull inflation.
Correct answer is: Consumers increase demand for housing
Q.21 When does 'creeping inflation' occur?
Prices rise slowly at less than 3% per year
Prices rise suddenly above 50%
Prices fall continuously
Prices remain stagnant
Explanation - Creeping inflation is mild and gradual, often below 3%, considered manageable.
Correct answer is: Prices rise slowly at less than 3% per year
Q.22 Which type of inflation is most dangerous for an economy?
Mild inflation
Galloping inflation
Creeping inflation
Controlled inflation
Explanation - Galloping inflation refers to very high rates that destabilize economies and hurt purchasing power severely.
Correct answer is: Galloping inflation
Q.23 What does the Phillips Curve show?
Relation between inflation and unemployment
Relation between inflation and exports
Relation between money supply and interest rates
Relation between GDP and savings
Explanation - The Phillips Curve depicts the trade-off between inflation and unemployment in the short run.
Correct answer is: Relation between inflation and unemployment
Q.24 During inflation, who suffers the most?
Debtors
Fixed income earners
Government
Businesses
Explanation - People with fixed incomes suffer most as their real purchasing power decreases with rising prices.
Correct answer is: Fixed income earners
Q.25 What is 'core inflation'?
Inflation including all goods
Inflation excluding volatile items like food and fuel
Inflation caused by imports
Hyperinflation
Explanation - Core inflation excludes highly fluctuating prices to better capture long-term inflation trends.
Correct answer is: Inflation excluding volatile items like food and fuel