The situation in an economy when inflation and unemployment both are at higher levels is known as __________.
- A.stagflation
- B.inflation premium
- C.inflationary gap
- D.reflation
Correct answer
Explanation
The correct answer is A, stagflation. Stagflation is a blend of the words stagnation and inflation: output stops growing, unemployment rises, and yet prices keep climbing. Normally inflation and unemployment move in opposite directions, as the Phillips curve shows, so stagflation is a puzzle for policy makers, because raising interest rates to cool prices worsens unemployment while spending to create jobs pushes prices higher. The classic example is the 1970s, when the oil price shocks of 1973 and 1979 hit western economies with slow growth and double-digit inflation at the same time. B is wrong because an inflation premium is the extra return lenders demand to make up for expected inflation. C is wrong because an inflationary gap is the amount by which total demand exceeds full-employment output, a situation of too much demand, not of high unemployment. D is wrong because reflation is a deliberate policy of boosting demand to lift an economy out of a slump. Exam tip: stagflation equals high inflation plus high unemployment plus stagnant growth, remembered by the 1970s oil crisis.
Practice Questions
View allAccording to the law of diminishing marginal utility, as the amount of a good consumed increases, the marginal utility of that good tends to
- A.improve
- B.diminish
- C.remain constant
- D.first diminish and then improve
Show answer
Each extra unit of a good gives a consumer less additional satisfaction than the unit before it, so marginal utility falls as consumption rises.
Read the full explanation →Consider the following statements about impact of tax : 1. A tax is shifted forward to consumers if the demand is inelastic relative to supply. 2. A tax is shifted backward to producers if the supply is relatively more inelastic than demand. Which of the statements given above is/are correct?
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
Show answer
The burden of a tax falls more heavily on whichever side of the market is less elastic, the side that cannot easily walk away.
Read the full explanation →UBI, as an alternative for subsidies in poverty alleviation, stands for
- A.Union Basic Income
- B.Undefined Basic Income
- C.Unconditional Basic Income
- D.Universal Basic Income
Show answer
UBI is the idea of paying every citizen a fixed sum of money regularly, without conditions, in place of a large number of separate subsidies and welfare schemes.
Read the full explanation →Who among the following is the Chairman of the Fourteenth Finance Commission?
- A.C. Rangarajan
- B.Vijay Kelkar
- C.Y. V. Reddy
- D.Rakesh Mohan
Show answer
The Fourteenth Finance Commission, set up in 2013 for the award period 2015-2020, was chaired by Y. V. Reddy, a former Governor of the Reserve Bank of India.
Read the full explanation →Why was constitutional amendment needed for introducing GST?
- A.States were not willing to agree with the Union for introduction of GST without amendment in the Constitution.
- B.GST was to be implemented on concurrent base and Article 246 was inadequate for such a case.
- C.The Empowered Committee of Finance Ministers had recommended for constitutional amendment.
- D.The GST Council had recommended for constitutional amendment so that its power enhances.
Show answer
GST is levied by the Union and the States together on the same supply, and Article 246, which splits taxing powers between them through separate lists, did not allow such a concurrent tax.
Read the full explanation →