Inflation: UPSC Previous Year Questions (Indian Economy)
15 previous year UPSC Prelims questions on inflation appear here, from 1997 to 2021. UPSC asks how inflation is measured, what causes demand-pull inflation, what deflation is and who gains and loses when prices rise. The explanations show the logic so that cause-effect questions can be solved from first principles.
Explanations state facts as of the year each question was asked; words like “recently” refer to that year.
Showing 11–15 of 15 questions
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UPSC 2010Indian Economy · Inflation
Q11. With reference to India, consider the following statements: 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 (CPIIW), the WPI gives less weight to food articles. Which of the statements given above is/are correct?
Explanation
Statement 1 is incorrect: During 2010 (but correct at present, January 2025) the Wholesale Price Index (WPI) was on a monthly basis and on a weekly basis for primary and fuel items. However, the Cabinet Committee on Economic Affairs (CCEA) in 2012 decided to discontinue weekly data on primary and fuel items. These changes were on the recommendation of Abhijit Sen committee’s proposals in 2004-05. The current base year for WPI is 2011-12.
Statement 2 is correct: The WPI which is published by the Office of Economic Adviser, Ministry of Commerce and Indus-try, gives less weight to food articles (24.38%) as compared to the Consumer Price Index for Industrial Workers (CPI IW), which assigns a higher weight (39.17%) to food items in the new series with base year 2016. The WPI and CPI have different weightages for various components. In the WPI, the weightage for food articles is relatively lower compared to the CPI for Indus-trial Workers (CPIIW). The CPIIW gives a higher weight to food and beverages because it reflects the consumption pattern of industrial workers, who spend a significant portion of their income on food. In contrast, the WPI covers a broader range of goods, including manufactured products, fuel, and power, and thus assigns a lower weight to food articles.
UPSC 2010Indian Economy · Inflation
Q12. Which one of the following statements is an appropriate description of deflation?
Explanation
Option (c) is correct: Deflation is a persistent fall in the general price level of goods and services. It is just the opposite of inflation which is continuous increase in the general price level of goods and services. As per the IMF "Deflation is defined as a sustained decline in an aggregate measure of prices, such as the consumer price index or the GDP deflator. " Options (a), (b) and (d) are incorrect:
A sudden fall in the value of a currency against other currencies is currency depreciation. A persistent recession in both the financial and real sectors of the economy may become Depression. A fall in the rate of inflation over a period of time may not lead to fall in general price level but just less inflation. This is also called disinflation.
UPSC 2000Indian Economy · Inflation
Q13. Match List I with List II and select the correct answer using the codes given below the lists:
List-I
List-II
A. Boom
1. Business activity at high level with increasing income, output and employment at macro level
B. Recession
2. Gradual fall of income, output and employment with business activity in a low gear
C. Depression
3. Unprecedented level of under employment, and unemployment, drastic fall in income output and employment.
D. Recovery
4. Steady rise in the general level of prices, income, output and employment.
Explanation
A is the correct match with 1: Boom refers to an economic period where growth, employment, and production are at their peak which results in a high level of business activities. B is the correct match with 2: Recession indicates a slowdown where business activity diminishes, leading to lower economic indicators, generally identified by a fall in GDP in two successive quarters. C is the correct match with 3: Depression is a severe down-turn with significant negative effects on income, employment, and output. A continued recession turns into depression. D is the correct match with 4: Recovery is a phase of improvement in economic conditions after a recession or depression which results in steady rise in general level of prices, income, output and employment.
UPSC 1998Indian Economy · Inflation
Q14. Some time back, the Government of India, decided to de-license ‘white goods’ industry. ‘White goods’ include:
Explanation
White goods are products for conspicuous consumption. They typically include large and costly household appliances such as refrigerators, washing machines, air conditioners, and other major home appliances. White goods typically refer to major household appliances that are traditionally white in color (although this is less of a defining characteristic now). These are durable consumer goods, often considered non-essential but associated with a certain level of comfort and lifestyle.
UPSC 1997Indian Economy · Inflation
Q15. In India, inflation is measured by the:
Explanation
In India, inflation has traditionally been measured using the Wholesale Price Index (WPI) and stands true for 1997. The WPI tracks the price changes of goods at the wholesale level, reflecting the prices at which goods are sold in bulk and is published by the Economic Adviser in the Ministry of Commerce and Industry. However, in recent years, the Consumer Price Index (CPI) has gained prominence as a measure of inflation, especially for policy decisions. The CPI measures price changes from the consumer’s perspective, capturing the retail prices of goods and services. The Reserve Bank of India (RBI) has adopted the CPI as the key measure for its inflation targeting framework.
Answer key for these questions
Q
UPSC year
Correct answer
11
2010
(b) 2 only
12
2010
(c) It is a persistent fall in the general price level of goods and services
13
2000
(a) A-1; B-2; C-3; D-4
14
1998
(c) items purchased for conspicuous consumption
15
1997
(a) Wholesale Price Index number
What UPSC has tested in Inflation
Creation of new money to finance a budget deficit is likely to be the most inflationary in its effects.
Deflation is a persistent fall in the general price level.
Inflation benefits debtors, but not bondholders.
The Consumer Price Index for Industrial Workers is brought out by the Labour Bureau.
The weightage of food is higher in the Consumer Price Index than in the Wholesale Price Index.
Frequently asked questions
How many previous year UPSC questions are there on Inflation?
This page covers 15 previous year UPSC Prelims GS Paper-I questions on Inflation (Indian Economy), asked from 1997 to 2021. Each has the correct answer and an explanation.
What is the most inflationary way to finance a budget deficit?
Creating new money, or monetising the deficit, because it raises the money supply without a matching rise in output. Borrowing from the public, in contrast, only moves existing money to the government.
Who benefits from inflation?
Debtors, since they repay loans in money that has lost value. Lenders and bondholders lose, because the real value of fixed interest and principal falls. A question asking who benefits therefore points to debtors, not bondholders.
Who publishes the Consumer Price Index for Industrial Workers?
The Labour Bureau, under the Ministry of Labour and Employment. It compiles the CPI for Industrial Workers, which is used to adjust dearness allowance and wages in industry and has a different weighting from the headline CPI.
