demand & supply, profit loss, inflation & price index section 2 MCQ Questions & Answers Detailed Explanation

Answer: (b)

Investment in capital and labour will increase productivity and production which will cause either rise in wages or the creation of employment or both thus the overall income will rise.

Answer: (c)

Supply-side economics lays greater emphasis on the point of view of the producer whereas the demand side economics lays emphasis on the interest of the consumer.

Answer: (a)

In the parlance of economy, Gilt-edged market is called market of safe securities. “Gilt-edged” denotes high-grade securities, consequently carrying low yields.

Answer: (b)

During inflation interest rates should increase so that the investor invests more in lieu of higher interest-earning thus money supply reduces which can reduce inflation.

Similarly higher interest rates mean credit becomes costly so that again supply of money reduces which helps in curbing inflation.

Answer: (a)

This rise in wholesale food prices was not captured by WPI as the weightage for food articles is just 14.3% compared to 65% for manufactured products in this index.

On the other hand, the weightage for food is 57% in CPI items which captures the impact of food prices better.

Further, wholesale prices do not take into account the substantial margins at the retail level, which tend to rise when there are shortages.

Answer: (c)

The basis of determining dearness allowance (D.A.) to government employees in India is the consumer price index. Dearness Allowance (DA) is an allowance paid to employees to compensate them for the erosion of real income/wage due to inflation.

The increase in the cost of living and the consequent erosion of income is measured in terms of a consumer price index number and, DA to be sanctioned to employees is determined on the basis of the percentage increase in that index.

Dearness Allowance - D.A. is calculated as a percentage of an Indian citizen’s basic salary to mitigate the impact of inflation on people.