[Solved] Inflation occurs when aggregate supply is -

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Q.	Inflation occurs when aggregate supply is -
A.	more than aggregate demand
B.	less than aggregate demand
C.	equal to aggregate demand
D.	None of these
Answer» B. less than aggregate demand
Explanation: If the supply is less than the demand, the price will increase. Inflation, the persistent increase in the average price level, can be caused by an increase in aggregate demand or a decrease in aggregate supply. This suggests two basics sources, causes, or types of inflation—demand-pull inflation and costpush inflation. In general, prices increase as a result of market shortages, which occur when quantity demanded exceeds quantity supplied. Market shortages can be created by either increases in demand or decreases in supply. Translating thisto the macro-economy suggests that inflation occurs when aggregate demand exceeds aggregate supply.

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