Which of the following statements is/are correct? One way to combat demand-pull inflation.i. is if the Reserve Bank raises the interest rates.ii.Demand-pull inflation usually leads to increased prices and increased unemployment.iii.Demand-pull inflation can be initiated by a cut in the marginal tax rate.

INFLATION

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A	i and ii
B	i and iii
C	ii and ii
D	All three statements are correct

Explanation:

Detailed explanation-1: -How Can Demand-Pull inflation Be Combated? Inflation can be combated by increasing demand. Economists have found that if aggregate demand increases, so will employment and production.

Detailed explanation-2: -when aggregate demand(AD) in the economy is higher than aggregate supply(AS), the prices in the economy rise leading to demand to pull inflation. It cannot be catered to by using the measure that reduces labor productivity as AD will not fall by reducing labor productivity. Thus, this is the correct option.

Detailed explanation-3: -Demand-pull inflation can be caused by an expanding economy, increased government spending, or overseas growth.

Detailed explanation-4: -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.

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ECONOMICS (CBSE/UGC NET)

ECONOMICS

INFLATION