MONEY AND BANKING (Part – I)

51. Tick mark which is incorrect about inflation : [R.A.S./R.T.S (Pre) 2008]

(a) Inflation indicated the rise in the price of a basket of commodities on a point-to-point basis.
(b) The inflation rate in India is calculated on the basis of the wholesale price index.
(C) For some commodities retail price are also considered for measurement of inflation.
(d) Inflation rate going down does not mean prices are declining.

Correct Answer: (b) The inflation rate in India is calculated on the basis of the wholesale price index.

Solution:As per the question period, option (c) was the correct answer, while at present option (b) is the right answer. In India, Consumer Price Index (CPI) and Wholesale Price Index (WPI) are two major indices for measuring inflation. The WPI was main index of inflation in India till April 2014, when Reserve Bank of India (RBI) adopted new CPI (Combined) as the key measure of inflation. It is noteworthy that WPI is based on wholesale prices for primary articles, administered prices for fuel items and ex-factory prices for manufactured products, while CPI is based on retail prices and it measures change over time in general level of prices of goods and services that households acquire for the purpose of consumption.

52. On what basis is the inflation rate measured in India? [Jharkhand P.C.S (Pre) 2011]

(a) Consumer Price Index
(b) Wholesale Price Index
(C) Labour Cost of Living index
(d) All of the above

Correct Answer: (d) All of the above

Solution:In India, the rate of inflation is generally measured on the basis of Consumer Price Index (CPI), Wholesale Price Index (WPI) and Labour Cost of Living Index. At present, RBI uses Consumer Price Index (CPI) (Combined) as the key measure of inflation.

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.

53. The most common measure of estimating inflation in India is : [U.P.S.C (Pre) 1997, U.P.P.C.S (Pre) 2012 , U.P.P.C.S (Mains) 2008 , U.P Lower Sub. (Spl.) (Pre) 2004 .]

(a) Price Index.
(b) Wholesale Price Index.
(C) Consumer Price Index.
(d) Price Index of Industrial Goods.

Correct Answer: (C) Consumer Price Index.

Solution:At present, RBI uses Consumer Price Index (CPI) (Combined) to measure headline inflation and its base year is 2012 =100. The Wholesale Price Index (WPI) was main index of inflation in India till April 2014, when RBI adopted new CPI (combined) as the key measure of inflation.

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.

54. In India, headline inflation is based on : [Jharkhand P.C.S (Pre) 2021]

(a) Consumer Price Index-Combined (CPI-C).
(b) Consumer Food Price Index (CFPL).
(C) Consumer Price Index - Rural Labourers (CPL-RL) .
(d) Wholesale Price Index (WPL).

Correct Answer: (a) Consumer Price Index-Combined (CPI-C).

Solution:At present, RBI uses Consumer Price Index (CPI) (Combined) to measure headline inflation and its base year is 2012 =100. The Wholesale Price Index (WPI) was main index of inflation in India till April 2014, when RBI adopted new CPI (combined) as the key measure of inflation.

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.

55. Headline inflation refers to the change in value of all goods on the basket. On Which is the headline inflation measured? [U.P.P.C.S (Pre) 2021]

(a) Wholesale Price Index.
(b) Consumer Price Index for Industrial Worker.
(C) Combined Consumer Price Index.
(d) Urban Consumer Price Index.

Correct Answer: (C) Combined Consumer Price Index.

Solution:At present, RBI uses Consumer Price Index (CPI) (Combined) to measure headline inflation and its base year is 2012 =100. The Wholesale Price Index (WPI) was main index of inflation in India till April 2014, when RBI adopted new CPI (combined) as the key measure of inflation.

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.

56. In India, inflation is measured by the : [R.A.S/R.T.S (Pre) 2013]

(a) Wholesale Price Index Number.
(b) Consumer Price Index for urban non-manual worker.
(C) Consumer Price Index for agricultural labourers.
(d) National Income Deflator.

Correct Answer: (a) Wholesale Price Index Number.

Solution:As per the question period option (a) was the correct answer. See the explanation below.
At present, RBI uses Consumer Price Index (CPI) (Combined) to measure headline inflation and its base year is 2012 =100. The Wholesale Price Index (WPI) was main index of inflation in India till April 2014, when RBI adopted new CPI (combined) as the key measure of inflation.

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.

57. Which of the following fixed the four percent inflation target in India with tolerance level of +/-2 percent for the period 20016 to 2021? [R.A.S/R.T.S (Pre) 2018]

(b) Reserve Bank of India
(b) Government of India
(C) NITI Aayog
(d) Fourteenth Finance Commission

Correct Answer: (b) Government of India

Solution:In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework. The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified in the Official Gazette 4 percent Consumer Price Index (CPI) inflation target with tolerance level of +/-2 percent for the period from 5 August, 2016 to 31 March, 2021.

Prior to the amendment in the RBI Act in May, 2016 the flexible inflation targeting framework was governed by an Agreement on Monetary Policy Framework between the Government and the RBI of 20 February, 2015.

Note: As per a notification issued on 31 March, 2021, the Central Government retained the CPI inflation target at 4 percent (with the upper tolerance level of 6 percent and the lower tolerance level of 2 percent) for the five year period 1 April, 2021 to 31 March, 2026.

58. The annual rate of inflation in India during the 1991 calendar year based on the monthly average of the Wholesale Price Index was : [R.A.S/R.T.S (Pre) 1992]

(a) 12.7%
(b) 13.5%
(C) 14.2%
(d) 14.5%

Correct Answer: (a) 12.7%

Solution:Inflation is the rate at which the value of currency is falling and consequently the general level of prices of goods and services is rising. The annual rate of inflation in India during the 1991 calender year based on the monthly average of the Wholesale Price Index (WPI) was about 12.7%. Average annual wholesale inflation rates based on WPI (Base Year 2011-12) during the recent financial years are as follows:

Year (April-March)	Inflation (in Percent)
2019-20	1.7
2020-21	1.3
2021-22	13.0
2022-23	9.41
2023-24	(-)0.70

59. Consider the following statements : [U.P.S.C (Pre) 2020]

1.The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPL).
2.The WPL does not capture changes in the price of service, which CPI does.
3.Reserve Bank of India has now adopted WPL as its key measure of Inflation and to decide on changing the key Policy rates.

Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 2 only
(C) 3 only
(d) 1, 2, and 3 only

Correct Answer: (a) 1 and 2 only

Solution:Consumer Price Index (CPI), also known as the cost of living index, measures the average change in retail prices. The weightage of food (food articles and products) in CPI (Combined) is 45.9%, while in Wholesale Price Index, it is 24.4%. Hence, statement (1) is also correct.

WPI measures the changes in the prices of goods sold and traded in bulk of wholesale business to other business. So, it does not include services. While, CPI includes both goods and services. Hence, statement (2) is also correct.

On the recommendation of Urjit R. Patel Committee, the RBI has adopted CPI (Combined) as its key measure of inflation and to decide on changing the key policy rates, since April 1, 2014. Hence, statement (3) is incorrect.

60. Consider the following statements with respect to consumer Price Index and select the correct answer from the codes given below : [U.P.B.E.O (Pre) 2019]

1.It computes price changes in both goods and services.
2.It is computed by the Office of Economic Advisor(OEA),Department of Industrial Policy and Promotion.
3.It is taken as the measure of inflation while formulating Monetary Policy by RBI.

Codes :

(a) 1 and 2
(b) 2 and 3
(c) 1 and 3
(d) Only 1

Correct Answer: (c) 1 and 3

Solution:Consumer Price Index (CPI) is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure. It is designed to measure the changes over time in general level of retail prices of selected goods and services that households purchase for the purpose of consumption. In India, segment specific CPIs, namely CPI (IW - for Industrial Workers), CPI (AL- for Agricultural Labourers) and CPI (RL - for Rural Labourers) are compiled by the Labour Bureau, while CPI (Urban), CPI (Rural) and CPI (Combined; Urban + Rural) are compiled and released by the National Statistical Office (NSO). CPI (Combined) is taken as the measure of inflation while formulating Monetary Policy by the RBI/MPC.

Hence Statement 1 and 3 are correct while Statement 2 is incorrect.

Wholesale Price Index (WPI) is computed and released by the Office of Economic Advisor (OEA), Department for Promotion of Industry and Internal Trade (formerly DIPP), Ministry of Commerce and Industry.

MONEY AND BANKING (Part – I)

51. Tick mark which is incorrect about inflation : [R.A.S./R.T.S (Pre) 2008]

52. On what basis is the inflation rate measured in India? [Jharkhand P.C.S (Pre) 2011]

53. The most common measure of estimating inflation in India is : [U.P.S.C (Pre) 1997, U.P.P.C.S (Pre) 2012 , U.P.P.C.S (Mains) 2008 , U.P Lower Sub. (Spl.) (Pre) 2004 .]

54. In India, headline inflation is based on : [Jharkhand P.C.S (Pre) 2021]

55. Headline inflation refers to the change in value of all goods on the basket. On Which is the headline inflation measured? [U.P.P.C.S (Pre) 2021]

56. In India, inflation is measured by the : [R.A.S/R.T.S (Pre) 2013]

57. Which of the following fixed the four percent inflation target in India with tolerance level of +/-2 percent for the period 20016 to 2021? [R.A.S/R.T.S (Pre) 2018]

58. The annual rate of inflation in India during the 1991 calendar year based on the monthly average of the Wholesale Price Index was : [R.A.S/R.T.S (Pre) 1992]

59. Consider the following statements : [U.P.S.C (Pre) 2020]

60. Consider the following statements with respect to consumer Price Index and select the correct answer from the codes given below : [U.P.B.E.O (Pre) 2019]

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