With reference to inflation in India, which of the following statements is correct?

[UPSC Civil Services Exam – 2015 Prelims]

(a) Controlling the inflation in India is the responsibility of the Government of India only

(b) The Reserve Bank of India has no role in controlling the inflation

(c) Decreased money circulation helps in controlling the inflation

(d) Increased money circulation helps in controlling the inflation

Answer: (c)        

Explanation:

• Inflation refers to the general increase in the prices of goods and services in an economy over a period of time.
• If the money supply increases than the economy’s ability to produce goods and services, then inflation will also increase.
• During the high inflation period, the government can reduce the spending to decrease the money circulation in the country.
• Therefore decreased money circulation helps in controlling inflation.
• Sterilization is the process under which the RBI absorbs excess liquidity in the economy.