Explanation:

Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. It is caused by an increase in the money supply in the economy. It is a situation where too much of money is chasing fixed number of goods and services.
• Money supply: If the volume of goods and services produced in the economy remains unchanged, the extra money will lead to an increase in prices of all commodities. People have more money in their hands with which they compete each other (increase in aggregate demand) in the commodities market for buying the same old stock of goods. As too much money is now chasing the same old quantities of output, the process ends up in bidding up prices of every commodity - an increase in the general price
level, which is also known as inflation. Hence increase in money supply and aggregate demand increases the price levels in an economy.
• When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the  system. Hence Sale of G-Secs will decrease the money supply and has the effect of decreasing the price levels.
• Hence option (b) is the correct answer.