Inflation and Employment MCQ Quiz - Objective Question with Answer for Inflation and Employment - Download Free PDF

The correct answer is Consumer price index.

Key Points

• Many developing countries use changes in the consumer price index (CPI) as their central measure of inflation.
• In India, CPI (combined) is declared as the new standard for measuring inflation (April 2014).
• CPI numbers are typically measured monthly, and with a significant lag, making them unsuitable for policy use.
• Inflation is the measured surge in the average prices of goods and services over a longer period in the economy.
• It is a macro term in which the impact of inflation on a large basket of goods is seen.
• As the value of money is decreased, the cumulative impact of inflation is reported as the buying power of money is reduced.

Important Points

• A wholesale price index (WPI) is an index that measures and monitors changes in the price of goods at stages prior to the retail level. This applies to goods sold in bulk and exchanged between companies or companies (instead of between consumers).
• The Consumer Price Index (CPI) is a metric examining the weighted average of consumer goods and services basket prices such as transport, food and medical care.

The correct answer is 'Hyper inflation'.

Key Points

Hyperinflation

• ​Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy.
• It occurs with the excessive growth of the money supply.
• Hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.
• Hyperinflation can cause a surge in prices for essential goods such as food and fuel as demand outpaces supply.

Additional Information

• Deflation
  • ​Deflation is a general decline in prices for goods and services.
  • It is associated with a contraction in the supply of money and credit in the economy.
  • During deflation, the purchasing power of currency rises over time.
• Normal Inflation
  • Normal Inflation is a tendency of increase in prices in the economy over a period of time.
  • The price rise is well under control, unlike Hyperinflation which is very difficult to control.
• Recession
  • Recession refers to the general fall in demand as economic activities take a downturn.​
  • A recession is a business cycle contraction.
  • It is a significant fall in spending generally lasting for more than a few months.
  • A recession can be defined as a sustained period of weak or negative growth in real GDP.
  • It is characterized by a decline in production and employment.

The correct answer is The Ministry of Commerce and Industry.

Key Points

• The Ministry of Commerce and Industry brings out the Wholesale Price (WPI) data in India.
• The Wholesale Price Index measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• It is published by the Office of Economic Advisor (Ministry of Commerce & Industry).
• The base year for WPI is 2011-12.
• It is effective from April 2017.
• It is unlike the Consumer Price Index (CPI), which tracks the prices of goods and services purchased by consumers.
• It captures the average movement of wholesale prices of goods and is primarily used as a GDP deflator.
• WPI(2011-12) reckons only basic prices and does not include taxes, rebate/trade discounts, transport and other charges.

The correct answer is ​Philips curve.

Key Points

• Philips curve - 
  • The Phillips curve is an economic concept developed by A. W Phillips
  • Stating that inflation and unemployment have a stable and inverse relationship. Hence statement 1 is correct.
  • The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.

                                              Philips Curve

Important Points

• Kuznets curve - It shows the relationship between economic growth and inequality. It shows that initially economic growth leads to greater inequality, followed later by the reduction of inequality.
• Laffer curve -  It shows the relationship between tax rates and the amount of tax revenue collected by governments. 
• Lorenze curve - It is a representation of income inequality or wealth inequality developed by American economist Max Lorenz in 1905.

The correct answer is 15, 59.

Important Points

• The workforce population includes people aged from 15 years to 59 years.
• The workforce population indicates the share of the working-age population in the total population.
• The working-age population is the total population in a particular area that is considered able and likely to work based on the number of people in a predetermined age range.
• The working-age population gives an estimate of the total number of potential workers within an economy.
• The age limits of the working-age population can vary from country to country.
• There were around 521 million workers in India, the second largest after China based on the world factbook data.

The correct answer is disguised unemployment.

Important Points

• The type of unemployment in the agricultural sector of India where more people are employed than required is known as disguised unemployment.
  • It is a common form of unemployment in rural areas.
  • Disguised unemployment will occur when more people are engaged in a job than required.
  • A study conducted in the late 1950s reported that one-third of agriculture workers in India as disguisedly unemployed
• Unemployment is the situation where a person is searching for a job but not able to get one.

Additional Information

• Seasonal unemployment is the unemployment that occurs during a certain season of the year.
  • Unemployment of the farmers during non-crop season is an example of seasonal unemployment.
• Structural unemployment is unemployment that arises due to the change in the structure of the economy.

The correct answer is Frictional unemployment. 

Key Points 

• Frictional unemployment is a type of unemployment that occurs when workers move from one job to another job.
• It is sometimes called search unemployment and can be based on the circumstances of the individual.
• Frictional unemployment is time spent between jobs when a worker is searching for a job or transitioning from one job to another.​

Additional Information

• Seasonal unemployment occurs when people are unemployed at particular times of the year when demand for labor is lower than usual.
• Technological unemployment occurs when developments in technology and working practices cause some workers to lose their jobs. Technological unemployment is considered to be part of a wider concept known as structural unemployment.
• Cyclical unemployment is the component of overall unemployment that results directly from cycles of economic upturn and downturn. Cyclical unemployment is the impact of economic recession or expansion on the total unemployment rate.

The correct answer is 15, 59.

Important Points

• The workforce population includes people aged from 15 years to 59 years.
• The workforce population indicates the share of the working-age population in the total population.
• The working-age population is the total population in a particular area that is considered able and likely to work based on the number of people in a predetermined age range.
• The working-age population gives an estimate of the total number of potential workers within an economy.
• The age limits of the working-age population can vary from country to country.
• There were around 521 million workers in India, the second largest after China based on the world factbook data.

The correct answer is the marginal productivity of labour is zero.

Key Points

• Disguised Unemployment:
  • It is a phenomenon wherein more people are employed than actually needed.
  • It is primarily traced in the agricultural and the unorganised sectors of India​.
  • The marginal productivity of labour is zero.
• Hence the correct option is 3.

​​​Additional Information

• Seasonal Unemployment:
  • It is unemployment that occurs during certain seasons of the year.
  • Agricultural labourers in India rarely have worked throughout the year.
• Structural Unemployment:
  • It is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market.
  • Many people in India do not get the job due to a lack of requisite skills and due to the poor education level, it becomes difficult to train them.
• Cyclical Unemployment:
  • It is the result of the business cycle, where unemployment rises during recessions and declines with economic growth.
  • Cyclical unemployment figures in India are negligible. It is a phenomenon that is mostly found in capitalist economies.
• Technological Unemployment:
  • It is the loss of jobs due to changes in technology.
  • In 2016, World Bank data predicted that the proportion of jobs threatened by automation in India is 69% year-on-year.
• Frictional Unemployment:
  • Frictional Unemployment also called Search Unemployment, refers to the time lag between the jobs when an individual is searching for a new job or is switching between the jobs.

The correct answer is Option 2, i.e Frictional Unemployment.

Important Points

• Frictional Unemployment is considered as good for an economy to some extent.
  • Frictional unemployment occurs when workers leave their old jobs but haven't yet found new ones.
  • An increase in frictional unemployment means more workers are moving toward better positions.
  • In fact, frictional unemployment benefits the economy.
  • It allows companies more opportunities to find qualified workers. Hence, it is considered better for the economy to some extent.

Additional Information 

• Cyclical unemployment is caused by the contraction phase of the business cycle.
  • This is when the demand for goods and services falls dramatically.
  • It forces businesses to lay off large numbers of workers to cut costs.
• Structural unemployment exists when shifts occur in the economy that creates a mismatch between the skills workers have and the skills needed by employers.
• Seasonal unemployment refers to the time period when the demand for labour or workforce is lower than normal under certain conditions. However, such a situation is only temporary and employment reverts to normal thereafter.

The correct option is Structural.

Key Points

• The term unemployment refers to a situation where a person actively searches for employment but is unable to find work.
• Structural unemployment comes about through a technological change in the structure of the economy in which labour markets operate. 
• Technological changes can lead to unemployment among workers displaced from jobs that are no longer needed
• Examples of such changes include the replacement of horse-drawn transport with automobiles and the automation of manufacturing,

Additional Information

• Frictional Unemployment
  • This type of unemployment is usually short-lived. It is also the least problematic from an economic standpoint. It occurs when people voluntarily change jobs.
• Seasonal unemployment
  • It occurs at different points over the year because of seasonal patterns that affect jobs. Some examples include ski instructors, fruit pickers and holiday-related jobs.
• Economic Unemployment
  • During an economic downturn, a shortfall of demand for goods and services results in a lack of jobs available for those who want to work. Businesses experiencing weaker demand might reduce the number of people they employ by laying off existing workers or hiring fewer new workers.

The correct answer is a & c.

Key Points

• Disguised unemployment is primarily traced in the agricultural and unorganized sectors of the economy.
• As the primary sector of the Indian economy, Agriculture provides employment to almost 51% of the total population.
• Disguised unemployment could simply be a form of underemployment wherein the skills of a labor force are not utilized to their full capacity.

Additional Information

• Important types of unemployment:
• Seasonal Unemployment - It occurs when people are unemployed at particular times of the year when demand for labor is lower than usual. 
• Cyclical Unemployment - It is the component of overall unemployment that results directly from cycles of economic upturn and downturn.
• Frictional Unemployment - It is a type of unemployment that arises when workers are searching for new jobs or are transitioning from one job to another.
• Structural Unemployment - It is long-lasting unemployment that comes about due to shifts in an economy.

The correct answer is Inflation.

Key Points

• Deflation
  • It occurs when asset and consumer prices fall over time. It is a negative inflation rate.
  • It is often used to express a declining economy.
  • Real interest rates become too high. It increases the burden of debt and reduces the disposable income of indebted people.
• Inflation
  • It refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, etc.
  • A certain level of inflation is required in the economy to ensure that expenditure is promoted and hoarding money through savings is demotivated.
  • As the spending increases, the demand also increases which leads to inflation. Hence, Economic growth is usually coupled with inflation. Hence, Option 2 is correct.
• Stagflation
  • It is an economic event in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.
  • It can also be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).
• Hyperinflation
  • It is a term to describe rapid, excessive, and out-of-control general price increases in an economy.
  • It has two main causes: an increase in the money supply and demand-pull inflation.
  • It can occur in times of war and economic turmoil in the underlying production economy, in conjunction with a central bank printing an excessive amount of money.

The correct answer is 'Cost-push Inflation'.

Key Points

• Cost-push inflation (also known as wage-push inflation) occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials.
• Higher costs of production can decrease the aggregate supply (the amount of total production) in the economy.
• Since the demand for goods hasn't changed, the price increases from production are passed onto consumers creating cost-push inflation.
• Cost-push Inflation develops when supply costs increase or the amount decreases.

Additional Information

• Demand-pull Inflation
  • ​Demand-pull inflation causes upward pressure on prices due to shortages in supply.
  • It is a condition that economists describe as "too many dollars chasing too few goods."
  • An increase in aggregate demand can also lead to this type of inflation.