Which one of the following situations can lead to inflation?
Rapid growth of aggregate demand outweighing supply
Sluggish growth of aggregate demand
Reduction in the money supply
Higher levels of unemployment
Answer is Wrong!
Answer is Right!
This question was previously asked in
UPSC CDS-1 – 2023
– Rapid growth of aggregate demand relative to supply creates upward pressure on prices.
– Sluggish demand growth typically leads to disinflation or deflation.
– Reduction in money supply is a monetary policy tool usually used to *combat* inflation by reducing aggregate demand.
– Higher levels of unemployment are usually associated with slack in the economy and low demand, which reduces inflationary pressure.