Money and Banking (Economic Development) Part-I

Total Questions: 150

71. The new WPI series was introduced on : [U.P.P.C.S (Mains) 2009]

Correct Answer: (d) 14 September, 2010
Solution:As per the question period, the new Wholesale Price Index (WPI) series was introduced with effect from 14 September, 2010. The base year of this WPI series was 2004-05. On 12 May, 2017 (effective from April, 2017) the base year of the WPI has been revised from 2004-05 to 2011-12.

Wholesale Price Index, or WPI, measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses. Wholesale market is only for goods, one cannot buy services on a wholesale basis. It is used to track the supply and demand dynamics in industry, manufacturing and construction.

The index is released by the Economic Advisor in the Ministry of Commerce and Industry every month. The quantum of rise in the WPI month-after-month is used to measure the level of wholesale inflation in the economy.

The index is based on the wholesale prices of number of relevant commodities available. The commodities are chosen based on their significance in the region. These represent different strata of the economy and are expected to provide a comprehensive WPI value.
Number of commodities: 697 items
Base year: 2011-12..

72. The base year for All-India Wholesale Price Index (WPI) has been changed by the Government of India from 2004-2005 to : [B.P.S.C (Pre) 2017]

Correct Answer: (b) 2011-2012
Solution:As per the question period, the new Wholesale Price Index (WPI) series was introduced with effect from 14 September, 2010. The base year of this WPI series was 2004-05. On 12 May, 2017 (effective from April, 2017) the base year of the WPI has been revised from 2004-05 to 2011-12.

Wholesale Price Index, or WPI, measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses. Wholesale market is only for goods, one cannot buy services on a wholesale basis.

It is used to track the supply and demand dynamics in industry, manufacturing and construction. The index is released by the Economic Advisor in the Ministry of Commerce and Industry every month. The quantum of rise in the WPI month-after-month is used to measure the level of wholesale inflation in the economy.

The index is based on the wholesale prices of number of relevant commodities available. The commodities are chosen based on their significance in the region. These represent different strata of the economy and are expected to provide a comprehensive WPI value.
Number of commodities: 697 items
Base year: 2011-12..

73. On which date was the new Wholesale Price Index with 2004-05 as the base year released? [U.P.P.C.S (Pre) 2011]

Correct Answer: (a) 14 September, 2010
Solution:As per the question period, the new Wholesale Price Index (WPI) series was introduced with effect from 14 September, 2010. The base year of this WPI series was 2004-05. On 12 May, 2017 (effective from April, 2017) the base year of the WPI has been revised from 2004-05 to 2011-12.

Major Components of WPI

'Primary articles' (22.62%) is a major component of WPI, further subdivided into Food
Articles and Non-Food Articles:

Food Articles: Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.

Non-Food Articles: Oil Seeds, Minerals and Crude Petroleum.

The next major basket in WPI is Fuel & Power (13.15%), which tracks price movements in Petrol, Diesel and LPG.

The biggest basket is Manufactured Goods (64.23%). It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.

Manufactured Goods basket also includes manufactured food products such as Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats..

74. The new series of Wholesale Price Index (WPI) released by the Government of India is with reference to the base price of : [U.P.S.C (Pre) 2001]

Correct Answer: (C) 1993-94
Solution:As per the question period, the new series of Wholesale Price Index (WPI) released by the Government of India was with reference to the base prices of 1993-94, previously it was 1981-82. At present, 2011-12 is used as the base year of WPI.

Major Components of WPI

'Primary articles' (22.62%) is a major component of WPI, further subdivided into Food

Articles and Non-Food Articles:

Food Articles: Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.

Non-Food Articles: Oil Seeds, Minerals and Crude Petroleum.

The next major basket in WPI is Fuel & Power (13.15%), which tracks price movements in Petrol, Diesel and LPG.

The biggest basket is Manufactured Goods (64.23%). It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.

Manufactured Goods basket also includes manufactured food products such as Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats..

75. In October 2009, a decision has been taken that the base year of Wholesale Price Index (WPI) has been shifted from 1993-94 to : [U.P.P.C.S (Pre) 2009]

Correct Answer: (d) 2004-2005
Solution:On 19 October, 2009, CCEA had decided to shift the base year of WPI from 1993-94 to 2004-05 and its data release on monthly basis. The new series of WPI base year 2004-05 was introduced with effect from September, 2010. This WPI series was implemented on the recommendation of Abhijit Sen Committee.

Major Components of WPI

'Primary articles' (22.62%) is a major component of WPI, further subdivided into Food

Articles and Non-Food Articles:

Food Articles: Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat & Fish, etc.

Non-Food Articles: Oil Seeds, Minerals and Crude Petroleum.

The next major basket in WPI is Fuel & Power (13.15%), which tracks price movements in Petrol, Diesel and LPG.

The biggest basket is Manufactured Goods (64.23%). It spans across a variety of manufactured products such as Textiles, Apparels, Paper, Chemicals, Plastic, Cement, Metals, and more.

Manufactured Goods basket also includes manufactured food products such as Sugar, Tobacco Products, Vegetable and Animal Oils, and Fats..

76. With reference to India, consider the following statements : [U.P.S.C (Pre) 2010]

1. The Wholesale Price Index (WPI) in India is available on a monthly basis only.
2. As compared to Consumer Price Index for Industrial Workers [CPI (IW)] the WPI gives less weight to food articles.

Which of the statements given above is/are correct?

Correct Answer: (C) Both 1 and 2
Solution:In October, 2009, the government decided on discontinuing the releasing of weekly inflation data based on Wholesale Price Index for 'All Commodities' and 'Manufactured Products'. Although till January 2012, the government continued to release Wholesale Price Index for 'Primary Articles' and 'Fuel & Power' data on weekly basis.

Hence, as per the question period, statement (1) was incorrect. But from February 2012, the WPI in India is available on a monthly basis only for all item groups. Therefore, Statement 1 is correct in the present context. Statement (2) is correct, because in India as compared to Consumer Price Index for Industrial Workers [CPI (IW)], the WPI gives less weight to food articles. Hence, in the present context, option (c) is the correct answer.

77. The current price index (base1960) is nearly 330. This means that : [U.P.S.C (Pre) 1998]

Correct Answer: (C) Weighted mean of prices of certain item has increased 3.3 times
Solution:Price index is a measure that examines the weighted average of prices of a basket of certain consumer goods and services. Given that the current price index (base year 1960=100) is nearly 330. It means that the weighted mean (average) of prices of certain items has increased 3.3 times.

The Wholesale Price Index (WPI) measures and tracks price changes in the wholesale market, focusing on goods traded between companies. It excludes services and is calculated monthly, representing a broad view of inflation at the wholesale level. In India, it is published by the Office of Economic Adviser, Department for Promotion of Industry and Internal Trade, with base year 2011-12.

The Consumer Price Index (CPI) tracks changes in the cost of a typical basket of goods and services over time, reflecting the overall shift in consumer prices. It is a key inflation measure monitored closely by policymakers, financial markets, businesses, and consumers alike. Unlike WPI, it includes services. The Central Statistics Office of the Ministry of Statistics and Programme Implementation publishes it.

The Producer Price Index (PPI) measures price changes from the perspective of producers, capturing input cost changes across manufacturing and production sectors. While PPI does not account for consumer prices, it provides insight into cost pressures that may eventually impact retail prices.

78. Producer Price Index measures : [U.P.R.O/A.R.O (Pre) 2017]

Correct Answer: (a) The average change in the price of produced goods and services.
Solution:Producer Price Index (PPI) measures the average change in the prices of goods and services either as they leave the place of production, called output PPI or as they enter the production process, called input PPI. PPI estimates the change in average prices that a producer receives.
  • PPI measures wholesale prices from the point of view of producers of goods and services by tracking prices at different stages of production.
  • It looks at inflation from the viewpoint of industry and business and measures price changes before consumers purchase final goods and services.
  • It has replaced WPI in most countries as it is conceptually in line with the internationally agreed System of National Accounts (SNA) to compile measures of economic activity....
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79. Assertion : .Cost push inflation is caused by shift in aggregate supply curve. [R.A.S/R.T.S (Pre) 2018]

Reason (R): Shift in aggregate supply curve takes place because of increase in wages.

Correct Answer: (a) Both (A) and (R) are true and (R) is the correct explanation of (A).
Solution:Cost push inflation is caused by shift or decrease in aggregate supply curve while increase in wages is the reason for shift (left side) or decrease in aggregate supply curve. Hence, both assertion and reason are true and reason is the correct explanation of assertion.

Inflation can stem from various economic factors, including increased demand, higher production costs, structural issues, or supply constraints in specific sectors. Understanding these causes helps in crafting effective inflation control strategies.

  • Demand-Pull Inflation: Demand-pull inflation occurs when an increase in the supply of money and credit causes overall demand for goods and services to rise faster than the economy's production capacity. This increases demand, which leads to price increases.
  • Cost-Push Inflation: Cost-push inflation is caused by an increase in prices for inputs used in the production process. When more money and credit are channelled into commodity or other asset markets, prices for all types of intermediate goods rise. This is especially evident when a negative economic shock disrupts the supply of key commodities.
  • Built-in Inflation: Built-in inflation is associated with adaptive expectations, which hold that current inflation rates will persist in the future. People may expect the price of goods and services to continue rising at a similar rate in the future.
  • Structural Inflation: Structural inflation occurs due to economic issues such as rigid supply chains or monopolistic market structures, leading to periodic price hikes in specific sectors.
  • Protein Inflation: Specifically related to the food sector, protein inflation refers to price increases in protein-rich food products like pulses, eggs, and meat, often due to demand shifts or supply constraints.

80. Consider the following statements : [U.P.S.C (Pre) 2023]

Statement-I : In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.
Statement-II Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.

Which one of the following is correct in respect of the above statements?

Correct Answer: (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
Solution:In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes to contain the post-pandemic inflation. A study by the World Bank, published in 2022, has revealed that with the Central Banks across the world simultaneously hiking interest rates in response to inflation, the world may be edging toward a global recession and a string of financial crises in emerging markets and developing economies that would do them lasting harm.

The report said that the Central Banks around the world have been raising interest rates this year (in 2022) with a degree of synchronicity not seen over the past five decades.

Central Banks use monetary policy to manage economic fluctuations and achieve price stability. Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means i.e. by increasing interest rates. They are doing the same to contain the post-pandemic inflation. Hence, both statements are correct and Statement-II is the correct explanation of Statement-I.