Mixed Economy + Inflation  MCQs for UPSC 2026

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Q1

Which of the following situations best reflects a feature of a mixed economy while also influencing inflation?

A. The government fixes the prices of all goods

B. Private sector dominates without regulation

C. The government provides subsidies on essential goods

D. Complete absence of the public sector

✅ Answer: C

Explanation:

• Subsidies = mixed economy feature ✔

• Affects inflation by lowering consumer prices ✔

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Q2

Consider the following statements:

1. In a mixed economy, both market forces and government intervention coexist.

2. Inflation control is exclusively the responsibility of the government.

3. Central bank policy is an example of state intervention.

Which are correct?

A. 1 only

B. 1 and 3 only

C. 2 and 3 only

D. 1, 2 and 3

✅ Answer: B

Trap: Inflation control ≠ exclusively government (RBI role).

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Q3

Which of the following policies represent government intervention in a mixed economy aimed at controlling inflation?

1. Imposing export bans

2. Increasing repo rate

3. Releasing buffer stocks

A. 1 and 3 only

B. 2 only

C. 1, 2, and 3

D. 2 and 3 only

✅ Answer: C

Why tricky:

• Export ban → Govt ✔

• Repo rate → RBI (state institution) ✔

• Buffer stock release → Govt ✔

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Q4

In a mixed economy, inflation caused by excess demand is most effectively controlled by:

A. Increasing subsidies

B. Expansionary fiscal policy

C. Tight monetary policy

D. Reducing taxes

✅ Answer: C

Trap: Subsidies/tax cuts may worsen demand.

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Q5

Which of the following may lead to cost-push inflation in a mixed economy?

A. Rise in indirect taxes

B. Increase in consumer demand

C. Increase in money supply

D. Fall in crude oil prices

✅ Answer: A

Explanation:

Higher taxes → higher production costs → inflation ✔

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Q6

Which of the following is true regarding inflation in a mixed economy?

A. Only private sector causes inflation

B. Only public sector causes inflation

C. Both demand-side and supply-side factors operate

D. Inflation cannot exist

✅ Answer: C

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Q7

Consider the following:

1. Public Distribution System (PDS)

2. Minimum Support Price (MSP)

3. Open Market Operations (OMO)

Which can influence inflation?

A. 1 and 2 only

B. 3 only

C. 1, 2, and 3

D. None

✅ Answer: C

Concept mix:

• PDS → consumer prices ✔

• MSP → food inflation ✔

• OMO → liquidity ✔

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Q8 (UPSC Trap Special)

Which of the following best explains why inflation persists in a mixed economy?

A. Absence of government

B. Absence of markets

C. Interaction of market forces & policy distortions

D. Inflation impossible under regulation

✅ Answer: C

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Q9

Which scenario reflects stagflation in a mixed economy?

A. High inflation + High growth

B. Low inflation + High unemployment

C. High inflation + Low growth

D. Low inflation + High growth

✅ Answer: C

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Q10 (Nasty Combo)

If the government increases spending while the central bank tightens monetary policy, the likely outcome is:

A. Guaranteed inflation

B. Guaranteed deflation

C. Policy conflict (fiscal vs monetary)

D. No macroeconomic impact

✅ Answer: C

Explanation:

UPSC loves this → Policy contradiction