Read the following Statements carefully and answer the question that follows:
Statement (I): Controlling Wages is a measure to control Inflation
Statement (II): Increasing Wages is a measure to control Inflation
Statement (III): Increasing rates of interest on Bank deposits is a measure to control Inflation
Statement (IV): Increasing spending on infrastructural development is a measure to control Supply side Inflation
Choose the correct option from the following:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Statements (I), (III) and (IV) are all correct but Statement (II) is incorrect
Inflation is a continuing rise in the general level of prices. It is controlled either by reducing excess demand or by lowering costs and raising supply; a measure that adds to demand or to costs feeds it instead.
Statement (I): Controlling Wages is a measure to control Inflation Correct. Wages are a large part of the cost of production, and wage rises passed on as higher prices start a wage-price spiral. Keeping wages in check controls cost-push inflation.
Statement (II): Increasing Wages is a measure to control Inflation Incorrect. Higher wages raise both the costs of firms and the spending power of people, so they push prices up rather than down.
Statement (III): Increasing rates of interest on Bank deposits is a measure to control Inflation Correct. Higher deposit rates make saving more attractive, so people spend less; the fall in demand eases demand-pull inflation. Raising interest rates is part of a tight monetary policy.
Statement (IV): Increasing spending on infrastructural development is a measure to control Supply side Inflation Correct. Supply-side inflation comes from shortages and high costs. Better roads, storage, power and transport remove supply bottlenecks and cut costs, so more goods reach the market.