Previous Year Questions

Question :

Directions : Read the following passage carefully and answer the questions that follow.

Inflation is crucial to determine one's purchasing power. In other words, inflation is a measure that causes the prices of both goods and services to rise over time and buyers will feel the pinch as it affects their personal finance, particularly spending and buying habits. One way of understanding inflation is, for instance, you bought a list of household essentials last month at an expense of INR 1,000, but this month the price of a certain food item in the same list has risen and that has led to an increase in the cost by let's say INR 1,100. You may be either forced to remove an item from your cart or buy the product that has the inflated price by paying the extra which may affect your monthly set.

Therefore, any factor that causes prices of goods and services to rise in the market and create instability in consumption leads to inflation. Economists suggest that achieving (A) inflation that's moderate average (B) enough to drive consumption usage (C)will create a baseline (D) of growth in the economy. However, high inflation indicates that an economy is facing serious troubles, whereas, low inflation, a.k.a. deflation is equally worrisome.

The country's retail inflation, which is measured by the consumer price index (CPI), slipped 6.44% in February this year, from 6.52% a month earlier. Similarly, inflation data on the Wholesale Price Index (WPI), which calculates the overall prices of goods before selling at retail prices, eased to 3.85% from 4.73% during the period. Last year, CPI hit its highest of 7.79% in April, and WPI reached 15.88% in May 2022.

The government, in the past, has announced a series of measures to ease inflation - cut the excise duty on petrol and diesel and reduce import duty on key raw materials and crude edible oils to name a few. On the other hand, one way the RBI tries to control inflation is by increasing the repo rate, in order to control the supply and demand of goods and services. Simultaneously, the increase in repo rates compels banks to increase interest rates on loans and deposit rates. Hence, it is important to ensure that you're financially disciplined, not only about your spending and buying habits but also about your savings and investments too.

Which of the following statements defines 'inflation' in accordance with the passage?