Static Quiz 25 November 2022 (Indian Economy)

Solution: d)
Justification: In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). This should not be confused with disinflation, a slow-down in the inflation rate (i.e., when inflation declines to lower levels). So, in a situation of deflation GDP may be growing, reducing or constant. Option (a) is wrong.
Deflation shows a general decline in prices of goods. It is not necessary that prices of all goods must have declined.
So, (b) is not appropriate. If Central bank follows an easy monetary policy, demand will be strong, and inflation is more likely than deflation. So,
(c) is wrong.
Most appropriate option is (d) since prices of goods may decline if demand decreases given constant supply of
goods. If demand is too weak, prices may reduce heavily.

Solution: a)
Justification: For e.g. if inflation in India is 5000%, then the very next year the value of Rs. 5000 will be near Rs. 100. It also leads to depreciation in the exchange rate of the currency.As a result, people lose confidence in the currency and holding it becomes a risky proposition. So, people switch to other forms of wealth like Gold, Foreign Currency (also known as “inflation proof” assets) etc.
It is one of the important reasons for the recent Gold rush in India. Introducing inflation-indexed bonds, Gold bonds is one way of reducing the demand of unproductive physical assets.

Solution: d)
Justification: Statement 1: Deflation shows a general decline in prices of a selected basket of goods. It is not necessary that prices of all goods must have declined.
Statement 2: In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). This should not be confused with disinflation, a slow-down in the inflation rate (i.e., when inflation declines to lower levels). So, in a situation of deflation GDP may be growing, reducing or constant.

Solution: c)
Justification: It is published by Office of Economic Adviser, Ministry of Commerce & Industry, New Delhi on a monthly frequency.
Weight of items are:
Primary articles (weight 22.62%)
Fuel & power (weight 13.15%)
Manufactured products (weight 64.23%)
WPI food index (weight 24.38%)

Solution: b)
Justification: There are three major groups in WPI – Primary Articles, Fuel & Power and Manufacture Products. Highest weightage has been accorded to the manufactured products. Consumer durables are a part of the manufactured products category. The WPI series base year, article composition and weightage has been revised to 2011-12 recently. The Office of the Economic Adviser takes the work relating to revision of the existing series of WPI.