Inflation

Statement 1 is Correct: Cyber insurance policies for individuals typically cover the costs incurred for restoring the computer system and data if they are corrupted or disrupted by a malware attack.

Statement 2 is Incorrect: Cyber insurance is designed to cover digital risks, liabilities, and financial losses; it does not cover physical damage to hardware or the cost of replacing a computer due to physical vandalism.

Statement 3 is Correct: In the event of cyber extortion (such as ransomware), these policies generally cover the expenses of hiring specialized consultants to investigate the threat and minimize potential losses.

Statement 4 is Correct: Cyber insurance provides coverage for legal defense costs if a third party files a lawsuit against the insured for privacy breaches, data theft, or defamation resulting from a cyber incident.

Option A is incorrect: Controlling inflation is a joint responsibility of both the Government of India and the Reserve Bank of India (RBI). While the government manages fiscal policy and supply-side measures (like buffer stocks), the RBI manages monetary policy.

Option B is incorrect: The RBI plays a central role in controlling inflation. Under the RBI Act, 1934, the RBI has a specific mandate to maintain price stability. The Monetary Policy Committee (MPC) of the RBI adjusts policy rates (like the Repo rate) specifically to keep inflation within a target range (4% +/- 2%).

Option C is correct: Decreased money circulation (contractionary monetary policy) is a standard tool to control inflation. By reducing the liquidity available in the economy, the central bank can reduce aggregate demand, which helps in cooling down rising prices.

Option D is incorrect: Increased money circulation generally leads to an increase in aggregate demand. If the supply of goods and services does not keep pace with this increased demand, it leads to demand-pull inflation.

The Labour Bureau, attached to the Ministry of Labour and Employment, is responsible for compiling and publishing the Consumer Price Index Number for Industrial Workers (CPI-IW) in India. This index tracks changes in the retail prices of a basket of goods and services consumed by industrial workers. It serves as a crucial indicator of inflation faced by this specific segment of the population.

The Labour Bureau is responsible for maintaining: - CPI (Industrial Workers) - CPI (Rural Labourers) - CPI (Agricultural Labourers)

Statement 1 is Correct: The weightage of 'Food and Beverages' in the Consumer Price Index (CPI-Combined) is approximately 45.86% (Base Year 2012). In contrast, the weightage of food items in the Wholesale Price Index (WPI) is significantly lower, with Food Articles and Food Products together accounting for about 24.38% (Base Year 2011-12).

Statement 2 is Correct: The WPI tracks the price of goods traded at the wholesale level and does not include the services sector. The CPI, however, captures price changes in both goods and services (such as medical care, education, and recreation) consumed by households.

Statement 3 is Incorrect: Based on the recommendations of the Urjit Patel Committee, the Reserve Bank of India (RBI) officially adopted CPI (Combined) as its key measure of inflation for monetary policy and interest rate decisions in April 2014, replacing the WPI.

Expansionary policies: Expansionary policies like increased government spending or lower interest rates can stimulate economic activity and consumer spending. This can lead to excess demand that outstrips supply, causing prices to rise.

Fiscal stimulus: Similar to expansionary policies, fiscal stimulus through government spending injections can create an inflationary gap if it's excessive.

Higher purchasing power: Higher purchasing power can contribute to demand-pull inflation. If people have more money to spend due to factors like wage increases or wealth accumulation, it can lead to increased demand for goods and services.

Inflation-indexing wages: While inflation-indexing wages can contribute to a wage-price spiral in some cases, it's not necessarily a direct cause of demand-pull inflation. It can be a consequence of inflation rather than a primary driver.

Rising interest rates: Rising interest rates generally act as a tool to cool down an economy and reduce inflation. They make borrowing more expensive and encourage saving, thereby reducing the money supply and aggregate demand.

Therefore, the correct code is 1, 2, and 4.


Statement 1 is correct. Inflation-indexed bonds (IIBs) typically offer a fixed real rate of return above inflation. Therefore, the coupon rates on IIBs are adjusted based on changes in inflation to maintain the real rate of return.

Statement 2 is correct. Inflation-indexed bonds (IIBs) provide investors with protection against inflation because their principal and interest payments are adjusted based on changes in the inflation rate. This helps investors preserve their purchasing power.

Statement 3 is incorrect. Tax exemption Currently, the interest income on IIBs is taxable in India. Capital gains tax treatment on IIBs might depend on the specific holding period and type of investor.

Statement 1 is correct: When prices rise, the real value of money decreases. Debtors repay their loans with money that has less purchasing power than when they borrowed it. Therefore, debtors gain because the real burden of debt falls.

Statement 2 is incorrect: Bondholders (lenders) receive fixed interest payments. During inflation, the real value of these payments decreases, as money loses purchasing power. Thus, bondholders lose during inflation.