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CPI and Economic Growth

Description: This quiz is designed to assess your understanding of the relationship between the Consumer Price Index (CPI) and economic growth in India.
Number of Questions: 15
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Tags: cpi economic growth inflation indian economy
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What is the Consumer Price Index (CPI)?

  1. A measure of the average change in prices of goods and services consumed by households.

  2. A measure of the average change in prices of goods and services produced by businesses.

  3. A measure of the average change in prices of goods and services exported by a country.

  4. A measure of the average change in prices of goods and services imported by a country.

Show answer
Correct Option: A
Explanation:

The CPI is a measure of the average change in prices of goods and services consumed by households. It is calculated by tracking the prices of a basket of goods and services that are representative of the spending patterns of households.

How is the CPI used to measure inflation?

  1. By comparing the current CPI to the CPI of a previous period.

  2. By comparing the current CPI to the CPI of a future period.

  3. By comparing the current CPI to the average CPI of the past five years.

  4. By comparing the current CPI to the average CPI of the past ten years.

Show answer
Correct Option: A
Explanation:

The CPI is used to measure inflation by comparing the current CPI to the CPI of a previous period. If the current CPI is higher than the CPI of the previous period, then inflation has occurred.

What is the relationship between CPI and economic growth?

  1. CPI and economic growth are positively correlated.

  2. CPI and economic growth are negatively correlated.

  3. CPI and economic growth are not correlated.

  4. The relationship between CPI and economic growth is complex and depends on a variety of factors.

Show answer
Correct Option: D
Explanation:

The relationship between CPI and economic growth is complex and depends on a variety of factors, including the level of inflation, the rate of economic growth, and the structure of the economy. In general, however, a moderate level of inflation can be beneficial for economic growth, while a high level of inflation can be harmful.

How can a moderate level of inflation be beneficial for economic growth?

  1. It can encourage businesses to invest and expand.

  2. It can reduce the real value of debt.

  3. It can boost consumer spending.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

A moderate level of inflation can be beneficial for economic growth because it can encourage businesses to invest and expand, reduce the real value of debt, and boost consumer spending.

How can a high level of inflation be harmful to economic growth?

  1. It can discourage businesses from investing and expanding.

  2. It can increase the real value of debt.

  3. It can reduce consumer spending.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

A high level of inflation can be harmful to economic growth because it can discourage businesses from investing and expanding, increase the real value of debt, and reduce consumer spending.

What are some of the factors that can affect the relationship between CPI and economic growth?

  1. The level of inflation.

  2. The rate of economic growth.

  3. The structure of the economy.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

The relationship between CPI and economic growth can be affected by a variety of factors, including the level of inflation, the rate of economic growth, and the structure of the economy.

What is the ideal level of inflation for economic growth?

  1. 0%.

  2. 2%.

  3. 4%.

  4. 6%.

Show answer
Correct Option: B
Explanation:

The ideal level of inflation for economic growth is generally considered to be around 2%.

What are some of the challenges in measuring CPI?

  1. The CPI basket of goods and services is not representative of the spending patterns of all households.

  2. The CPI does not take into account the quality of goods and services.

  3. The CPI is subject to substitution bias.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

The CPI basket of goods and services is not representative of the spending patterns of all households, the CPI does not take into account the quality of goods and services, and the CPI is subject to substitution bias.

What are some of the limitations of using CPI to measure inflation?

  1. The CPI does not include the prices of all goods and services.

  2. The CPI is not adjusted for changes in the quality of goods and services.

  3. The CPI is subject to substitution bias.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

The CPI does not include the prices of all goods and services, the CPI is not adjusted for changes in the quality of goods and services, and the CPI is subject to substitution bias.

What are some of the alternative measures of inflation?

  1. The Producer Price Index (PPI).

  2. The Personal Consumption Expenditures Price Index (PCEPI).

  3. The GDP Price Deflator.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

The Producer Price Index (PPI), the Personal Consumption Expenditures Price Index (PCEPI), and the GDP Price Deflator are all alternative measures of inflation.

Which measure of inflation is most commonly used by central banks?

  1. The CPI.

  2. The PPI.

  3. The PCEPI.

  4. The GDP Price Deflator.

Show answer
Correct Option: A
Explanation:

The CPI is the most commonly used measure of inflation by central banks.

How does the CPI affect the value of money?

  1. A higher CPI means that the value of money decreases.

  2. A higher CPI means that the value of money increases.

  3. A higher CPI means that the value of money remains the same.

  4. A higher CPI means that the value of money fluctuates.

Show answer
Correct Option: A
Explanation:

A higher CPI means that the prices of goods and services are increasing, which means that the value of money decreases.

How does the CPI affect the purchasing power of consumers?

  1. A higher CPI means that consumers can buy more goods and services.

  2. A higher CPI means that consumers can buy fewer goods and services.

  3. A higher CPI means that consumers can buy the same amount of goods and services.

  4. A higher CPI means that consumers can buy a different amount of goods and services.

Show answer
Correct Option: B
Explanation:

A higher CPI means that the prices of goods and services are increasing, which means that consumers can buy fewer goods and services with the same amount of money.

How does the CPI affect the cost of living?

  1. A higher CPI means that the cost of living increases.

  2. A higher CPI means that the cost of living decreases.

  3. A higher CPI means that the cost of living remains the same.

  4. A higher CPI means that the cost of living fluctuates.

Show answer
Correct Option: A
Explanation:

A higher CPI means that the prices of goods and services are increasing, which means that the cost of living increases.

How does the CPI affect the economy?

  1. A higher CPI can lead to economic growth.

  2. A higher CPI can lead to economic recession.

  3. A higher CPI can lead to economic stagnation.

  4. A higher CPI can lead to economic inflation.

Show answer
Correct Option: D
Explanation:

A higher CPI means that the prices of goods and services are increasing, which can lead to economic inflation.

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