2023 · Q40
Which one of the following situations can lead to inflation?
General KnowledgeIndian Economy
- ARapid growth of aggregate demand outweighing supply
- BSluggish growth of aggregate demand
- CReduction in the money supply
- DHigher levels of unemployment
Explanation
Inflation is a sustained rise in the general price level, classically caused by demand-pull pressure: when rapid growth of aggregate demand outstrips the economy's supply capacity, prices are bid up. Sluggish demand, reduced money supply and high unemployment are deflationary/recessionary conditions that lower, not raise, prices.