Deficit financing creates additional paper currency to fill the gap between
expenditure and revenue. This device aims at economic development but if it
fails, it generates :

A) inflation

B) devaluation

C) deflation

D) demonetisation

Correct Answer:
A) inflation

Part of solved Currency Inflation questions and answers : General Knowledge >> Economy >> Currency Inflation


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1). A steady increase in the general level of prices as a result of excessive increase
in aggregate demand as compared to aggregate supply is termed as :
A). demand-pull inflation
B). cost-push inflation
C). stagflation
D). structural inflation
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2). Which of the following are definite implications of a fall in inflation?
1. Prices have fallen
2. Prices are increasing more slowly than before
3. Food supply has increased
4. There is industrial stagnation
A). 1 and 3
B). 1 only
C). 2 only
D). 1, 3 and 4
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3). Among the causes of inflation can be listed :
1. slow growth in agricultural output
2. increasing non-development expenditure of Government
3. rapid population growth
4. rapid growth in costly imports
A). 1 and 2
B). 2 and 3
C). 1, 2, 3 and 4
D). 1 and 4 only
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4). Among the remedies of inflation we cannot include :
A). better capacity utilisation
B). lowering bank rate
C). reducing budgetary deficit
D). an efficient public distribution system
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5). A very rapid growth in prices in which money loses its value to the point where
even barter may be preferable is known as :
A). inflation
B). hyper-inflation
C). deflation
D). disinflation
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6). Inflationary Gap is a situation characterised by :
A). excess of Aggregate Demand over Aggregate Supply at the full employment
B). gap between Galloping Inflation and Runaway Inflation
C). Inflation coupled with recession
D). Inflation that usually prevails in a developing country
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7). Which of the following is wrongly matched?
A). (a) Depression - Insufficient demand causing large scale unemployment of men and machinery over a long period of time
B). (b) Recession - Reduction in demand and production/investment over a short
period of time
C). (c ) Stagflation - slow pace of economic activity due to falling prices
D). (d) Boom - Rapid and all-round spurt in economic activity
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8). A high rate of inflation tends to worsen balance of payment because :
A). (a) prices of imported goods rise
B). (b) prices of exported goods rise making exports less competitive
C). (c ) prices of imported goods fall and hence more is imported
D). (d) prices of exported goods fall and hence less amount is obtained in terms of
foreign exchange
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9). The effect of inflation on tax revenue results in a situation known as :
A). (a) stagflation
B). (b) fiscal drag
C). (c ) reflation
D). (d) disinflation
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10). Inflation is caused as a result of :
A). (a) increase in money supply
B). (b) fall in production
C). (c ) increase in money supply without a corresponding decrease in production
D). (d) decrease in money supply without a corresponding decrease in production
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