UPSC Prelims Mock: Inflation, Money & Banking, National Income

What you will practice

1. 1.Consider the following statements regarding inflation in an economy: 1. A sustained rise in the price of a particular commodity necessarily constitutes inflation. 2. Disinflation refers to a fall in the general price level. 3. A favourable base effect can reduce year-on-year inflation even when prices continue to rise sequentially. Which of the statements given above is/are correct?
2. 2.Consider the following statements regarding demand-pull and cost-push inflation: 1. A persistent increase in aggregate demand beyond productive capacity can generate demand-pull inflation. 2. A rise in crude oil prices can generate cost-push inflation even if aggregate demand remains unchanged. 3. Cost-push inflation can never be accompanied by a fall in real output. Which of the statements given above is/are correct?
3. 3.With reference to India's inflation-targeting framework, consider the following statements: 1. The nominal anchor used for inflation targeting is CPI inflation. 2. The target is expressed as a point target with a tolerance band around it. 3. The tolerance band implies that inflation anywhere within the band is automatically considered optimal monetary policy. Which of the statements given above is/are correct?
4. 4.Consider the following statements regarding the real interest rate: 1. If the nominal interest rate is unchanged and inflation rises, the ex-post real interest rate generally falls. 2. An unexpected rise in inflation can redistribute wealth from fixed-rate lenders to borrowers, other things remaining equal. 3. A negative real interest rate necessarily implies a negative nominal interest rate. Which of the statements given above is/are correct?
5. 5.Consider the following statements about core inflation: 1. It is intended to provide information about the underlying inflation trend by excluding selected volatile items. 2. There is one universally accepted list of items that must be excluded from core inflation in all countries and at all times. 3. Core inflation can be above or below headline inflation. Which of the statements given above is/are correct?
6. 6.Consider the following statements regarding commercial bank money creation: 1. When a commercial bank grants a loan, it can create a corresponding deposit in the borrower's account. 2. Repayment of the principal of a bank loan can extinguish bank-created deposit money. 3. Commercial banks can create unlimited deposit money as long as borrowers are willing to borrow. Which of the statements given above is/are correct?
7. 7.Consider the following statements regarding reserve money and broad money: 1. Currency in circulation forms part of reserve money. 2. Bankers' deposits with the central bank form part of reserve money. 3. An increase in reserve money must always produce an equal proportional increase in broad money. Which of the statements given above is/are correct?
8. 8.If the central bank purchases government securities in the open market, which of the following is the most immediate balance-sheet effect, other things remaining equal? 1. The banking system's reserves with the central bank increase when the seller is a bank or when the proceeds enter the banking system. 2. Liquidity in the banking system can increase. 3. Banks are legally compelled to expand credit by the amount of the purchase. Which of the statements given above is/are correct?
9. 9.Consider the following statements regarding the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR): 1. CRR requires banks to maintain specified cash reserves with the RBI. 2. SLR can be maintained through specified liquid assets, including eligible government securities. 3. Securities held for SLR are simply another form of CRR balance with the RBI. Which of the statements given above is/are correct?
10. 10.A banking system has abundant excess reserves, but private-sector credit growth remains weak. Which of the following can explain this situation? 1. Weak demand for credit 2. Higher perceived credit risk 3. Banks' preference for liquidity 4. An absence of reserves in the banking system Select the correct answer using the code below.

And 10 more questions.