If the nominal rate of interest on a deposit is 6 per cent and the rate of inflation is 8 per cent, the real rate of interest is:

The correct answer is B, the Consumer Price Index (Combined). When the flexible inflation targeting framework was adopted after the amendment of the Reserve Bank of India Act in 2016, the combined rural and urban consumer price index released by the National Statistical Office was made the nominal anchor, as the Urjit Patel Committee had recommended. It was chosen because it measures the prices households actually pay and includes services.

Option A, the wholesale price index, was the headline measure before this change, but it covers only goods traded in bulk and no services at all. Option C, the Index of Industrial Production, measures the volume of industrial output and is not a price index. Option D, the GDP deflator, is the broadest price measure but is published only with the national accounts, far too late for a monthly policy decision.

The correct answer is C, the Office of the Economic Adviser. The wholesale price index is compiled and released every month by the Office of the Economic Adviser in the Department for Promotion of Industry and Internal Trade, under the Ministry of Commerce and Industry. Its three groups are primary articles, fuel and power, and manufactured products, and the series released in 2017 has 2011-12 as its base year.

Option A, the Reserve Bank of India, uses price indices for monetary policy but does not compile them. Option B, the Labour Bureau under the Ministry of Labour and Employment, compiles the consumer price indices for industrial workers and for agricultural and rural labourers. Option D, the National Statistical Office, compiles the combined consumer price index and the national accounts.

The correct answer is B, demand-pull inflation. It is described in the classic phrase as too much money chasing too few goods. A rapid growth of money supply, a large increase in government spending, easy credit or a sudden rise in exports can push total demand beyond what the economy can produce at current prices, and prices then rise to clear the market.

Option A, cost-push inflation, works from the supply side, when costlier crude oil, higher wages or dearer imported inputs raise the cost of production and producers pass it on. Option C, structural inflation, comes from bottlenecks such as poor storage, weak transport or shortages of skilled labour. Option D, imported inflation, is a form of cost-push in which a fall in the value of the currency or a rise in world prices makes imports dearer.

The correct answer is C, stagflation. The word joins stagnation and inflation, and it describes the awkward situation in which prices are rising fast while output is flat and unemployment is high. It is difficult to treat, because raising interest rates to control prices depresses output further, while stimulating demand to create jobs pushes prices higher still. The oil shocks of the 1970s produced the best known episode of stagflation in the world economy.

Option A, reflation, is a deliberate policy of raising demand and prices after deflation. Option B, disinflation, is a fall in the rate of inflation while prices still rise. Option D, deflation, is an actual fall in the general price level and usually goes with weak demand rather than with high inflation.

The correct answer is A, borrowers. A loan is repaid in a fixed number of rupees, and inflation reduces what those rupees can buy. The borrower therefore returns money of smaller real value than the money received, so the real burden of the debt falls. Producers and traders who hold stocks of goods gain in the same way, since the value of what they hold rises with the price level.

Option B, lenders, lose for the same reason, because the interest they receive may not even cover the loss of purchasing power. Option C, pensioners, live on fixed payments and lose unless the pension is indexed to prices. Option D, holders of fixed deposits, earn a fixed nominal rate; when inflation is higher than that rate the real return is negative and their savings shrink in value.