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 is the term used to describe the overall rise in prices of goods and services within an economy over time.
- When the money supply increases faster than the economy’s capacity to produce goods and services, inflation tends to increase as well.
- In times of high inflation, the government has the option to reduce spending in order to limit the amount of money circulating in the country.
- Consequently, a decrease in money circulation aids in controlling inflation. Sterilization is the process by which the Reserve Bank of India (RBI) absorbs surplus liquidity within the economy.
