ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Yes, “printing” money by increasing the money supply causes inflationary pressure. As more money is circulating within the economy, economic growth is more likely to occur at the risk of price destabilization.

Detailed explanation-2: -Inflation is caused when the money supply in an economy grows at faster rate than the economy’s ability to produce goods and services.

Detailed explanation-3: -An increase in the supply of money works both through lowering interest rates, which spurs investment, and through putting more money in the hands of consumers, making them feel wealthier, and thus stimulating spending. Business firms respond to increased sales by ordering more raw materials and increasing production.

Detailed explanation-4: -The demand for goods remains unchanged while the supply of goods decreases due to the higher costs of production. The added costs of production result in higher prices for consumers.

Detailed explanation-5: -The excess demand puts upward pressure on prices across a broad range of goods and services and ultimately leads to an increase in inflation – that is, it ‘pulls’ inflation higher.