ECONOMICS (CBSE/UGC NET)

ECONOMICS

AGGREGATE DEMAND

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Which of the following is TRUE?
A
Increased investment could trigger inflation in the SR
B
Investment can never lead to inflation
C
Increased investment always shifts AD right
D
Increased investment has no impact on AD
Explanation: 

Detailed explanation-1: -The true statement is option d) It refers to an increase in the average level of prices. The inflation over a given period signifies the general increase in the average price level of goods and services.

Detailed explanation-2: -There are two main causes of inflation: demand-pull and cost-push. Both are responsible for a general rise in prices in an economy, but each works differently to put pressure on prices. Demand-pull conditions occur when demand from consumers pulls prices up, while cost-push occurs when supply costs force prices higher.

Detailed explanation-3: -Inflation is defined as a sustained increase in the general price level of goods and services in an economy over a period of time. When inflation rises, the purchasing power of money is reduced as consumers will need to fork out more money to buy the same quantity of goods and services.

Detailed explanation-4: -Cost-push inflation can occur when higher costs of production decrease the aggregate supply (the amount of total production) in the economy. Since the demand for goods hasn’t changed, the price increases from production are passed onto consumers creating cost-push inflation.

There is 1 question to complete.