Money Supply and Monetary Policy

Economic Affairs

Title

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Indian Economy - Understanding the basics of Indian economic system

A rise in general level of prices may be caused by:

1. an increase in the MONEY supply

2. a decrease in the aggregate level of output

3. an increase in the effective demand

Select the correct answer using the codes given below.

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

An increase in the MONEY supply will increase abundance of money in maket hence causing a general rise in prices.

A decrease in the aggregate level of output will lead to scarcity like situation hence casing a general rise in prices

Increase in the effective demand will also lead to a general rise in prices as established by Supply-Demand formulae