Question

Inflation rose by 5% over the second quarter, by 4% during the first quarter and higher than 3% recorded during the same time last year. However, the higher price index did not seem to alarm National stock Index as stock prices remain steady. Which of the following, if true, could explain the reaction of National stock Index?

• A. RBI announced that it will take necessary corrective measures
• B. Stock prices were steady because of a fear that inflation would continue.
• C. Economists warned that inflation would continue.
• D. Much of the quarterly increase in the price level was due to a summer drought effect on food price.

Answer 1

Answer: (D)

Much of the quarterly increase in the price level was due to a summer drought effect on food price.

Answer 2

The correct option is (D): Much of the quarterly increase in the price level was due to a summer drought effect on food price.