ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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.

Detailed explanation-2: -Inflation is the general rise in the prices of goods and services in an economy, over a period of time. It reduces the purchasing power of consumers, because each unit of currency can purchase fewer products with an increase in the general price levels.

Detailed explanation-3: -During inflationary periods, prices are higher, and it is more expensive to incur debt. For these two reasons, companies often sell fewer products and the economy slows. This may lead to diminished corporate profits, layoffs, and pressures on households. The end result of this cycle of events is a potential recession.

Detailed explanation-4: -In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.