UPSC Prelims 2015 – Question 87

87.With reference to inflation in India, which of the
following statements is correct?

1. a) Controlling the inflation in India is the responsibility of the Government of India only
2. b) The Reserve Bank of India has no role in controlling the inflation
3. c) Decreased money circulation helps in controlling the inflation
4. d) Increased money circulation helpsin controlling the inflation

The correct answer is Option 3. 

• Inflation  
  • It refers to the general increase in the prices of goods and services in an economy over some time. 
  • If the money supply increases than the economy’s ability to produce goods and services, then inflation will also increase. 
  • During the high inflation period, the government can reduce spending to decrease the money circulation in the country. 
  • Therefore, decreased money circulation helps in controlling inflation. Hence, Option 3 is correct. 
  • Sterilization is the process under which the RBI absorbs excess liquidity in the economy. 
  • The Central Bank of India is the authority to control inflation through monetary policies which it does by increasing bank rates, repo rates, cash reserve ratio, buying dollars, and regulating money supply and availability of credit. 

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