UPSC Prelims 2015 GS Paper I · Q87 of 100 Economy easy

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 ✓ UPSC's answer
  4. (d) Increased money circulation helps in controlling the inflation

Why the answer is (c)

• Inflation is 'too much money chasing too few goods'; reducing money in circulation through tighter monetary policy (higher rates, CRR) curbs demand and helps control inflation — option (c).

• Both the Government (fiscal and supply measures) and the RBI (monetary policy, with a legal inflation target since 2016) share responsibility, so (a) and (b) are wrong; increasing money circulation (d) fuels inflation.

• Hence option (c).

Why the other options are wrong

(a) Controlling the inflation in India is the responsibility of the Government of India only
The RBI shares responsibility with the Government.
(b) The Reserve Bank of India has no role in controlling the inflation
The RBI has a central role via monetary policy.
(d) Increased money circulation helps in controlling the inflation
More money in circulation worsens inflation.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2015, held on 23 August 2015. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

Reading the answer is not the same as getting it right under a clock. Practise this question with UPSC's negative marking, and anything you miss goes into an error notebook until you get it right twice.

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