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| Q. |
Inflation is caused by - |
| A. | increase in money supply and decrease in production |
| B. | increase in money supply |
| C. | increase in production |
| D. | decrease in production |
| Answer» A. increase in money supply and decrease in production | |
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Explanation: Economists generally agree that in the long run, inflation is caused by increases in the money supply. According to the theory of Demand-Pull Inflation, if demand grows faster than supply, prices will increase. There is too much money chasing too few goods. The increase in money supply is not matched by the equivalent production of goods. |
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