SSC CPO 2025 PYQ — Question 91

Answer: When the general price level rises, the value of money falls.
Explanation:

• In macroeconomics, inflation is a situation characterized by a sustained increase in the general price level of goods and services. When prices rise, the purchasing power of money declines. This means that a fixed unit of currency (such as 100 rupees) can now purchase fewer goods than it could previously. Therefore, a 'rise in the price level' and a 'fall in the value of money' are two sides of the same coin.

Analysis of Other Options:

• Option 1 (Incorrect): Gross Domestic Product (GDP) represents the value of goods and services produced *only* within a country's geographical boundaries. Income received from abroad is included in the Gross National Product (GNP), not in the GDP.
• Option 3 (Incorrect): When exports exceed imports, it is termed a 'trade surplus.' A 'balanced budget' occurs when the government's total revenue equals its total expenditure.
• Option 4 (Incorrect): The Central Bank (such as the RBI) controls inflation through monetary policy tools (such as the Repo Rate and CRR). Changes in income tax rates are part of fiscal policy, which is controlled by the government.

Additional Points:

• Monetary Policy vs. Fiscal Policy: The Central Bank reduces the money supply in the market—typically by raising interest rates—in order to curb inflation.
• GDP vs. GNP: GDP = Total production within the country.
• GNP = GDP + Net Factor Income from Abroad (NFIA).

Potential Exam Questions and Answers:

• Question: Which is the primary index used to measure inflation in India?
• Answer: The Consumer Price Index (CPI).
• Question: If a country's Central Bank increases the 'Repo Rate,' what will be the impact on the money supply?
• Answer: The money supply will decrease (in order to control inflation).
• Question: The erosion of 'purchasing power' is a symptom of which economic condition? Answer: Inflation.