ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up. This is the most common cause of inflation.

Detailed explanation-2: -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.

Detailed explanation-3: -Higher interest rates make borrowing costs less attractive for firms and consumers, which leads to less demand for goods and investment. Since inflation is caused by demand outstripping supply, lowering demand to bring it in line with supply relieves the pressures that were raising prices.

Detailed explanation-4: -Increase in public spending, hoarding, tax reductions, price rise in international markets are the causes of inflation. These factors lead to rising prices. Also, increasing demands causes higher prices which leads to Inflation.

Detailed explanation-5: -The correct answer is Increase in money supply and Fall in production. Inflation is a caused when there is an increase in money supply and fall in production. Also occurs due to rising prices of goods and services in an economy.