A rise in general level of prices may be caused by 1 An increase in the money supply 2 A decrease in...........

Economic Affairs Inflation

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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:

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Explanation:

Increase in general price level or inflation has two influencing factors Demand-pull inflation and Cost-push inflation.

Demand-pull inflation occurs when aggregate demand for goods and services in an economy rises more rapidly than an economy's productive capacity. One potential shock to aggregate demand might come from a central bank that rapidly increases the supply of money.

The decrease in aggregate level of output and increase in the effective demand also lead to inflation.

Cost-push inflation, on the other hand, occurs when prices of production process inputs increase.

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