With reference to inflation in India, which of the following statements is correct?
Answer & explanation
Answer: (c) Decreased money circulation helps in controlling the inflation
Option (c) is correct because reducing the money in circulation eases price pressure. Inflation is a general rise in prices, and it is pushed up when too much money chases the available goods. The RBI reduces money supply through its monetary policy tools.
- ✗ (a) Inflation control is shared. The Government acts through fiscal and supply-side measures, and the RBI acts through monetary policy. It is not the Government's responsibility alone.
- ✗ (b) The RBI is the central bank and controls the country's money supply through the bank rate, open market operations and changes in reserve ratios. Maintaining price stability is the primary objective of its monetary policy.
- ✓ (c) Limiting monetary expansion is a standard way to control inflation. The RBI has explicitly pursued the objective of controlling inflation by limiting monetary expansion, using money supply measures as its targets.
- ✗ (d) More money in circulation without a matching rise in output adds to demand and raises prices. It worsens inflation and does not control it.
- • Since then Since the 2016 amendment to the RBI Act, 1934, flexible inflation targeting has had a statutory basis. The Central Government, in consultation with the RBI, sets the CPI inflation target, and the RBI works to meet it. This does not change the answer.
Remember · Inflation control is a joint task of the Government (fiscal policy) and the RBI (monetary policy). Tightening money supply, for example by raising the CRR or the repo rate, curbs inflation.
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter)
Sources
- NCERT Class 12 · Introductory Macroeconomics, Chapter 3 “It controls money supply of the country through various methods, like bank rate, open market operations and variations in reserve ratios.”
- RBI speech: Seven Ages of India's Monetary Policy ↗ “with the objective of controlling inflation through limiting monetary expansion, reserve money was used as operating target and broad money as intermediate target.”
- RBI – Monetary Policy Overview ↗ “RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability while keeping in mind the objective of growth.”
Question: UPSC Civil Services (Preliminary) 2015, General Studies Paper I. Explanation: Minimalist IAS, checked 25 Oct 2026 (how we verify). ·
