UPSC CSE Prelims
Question 83
A rise in general level of prices may be caused by
- an increase in the money supply
- a decrease in the aggregate level of output
- an increase in the effective demand
Select the correct answer using the codes given below.
View correct answer and explanation
Correct answer: D
Correct Option: D
Explanation: The general price level can rise when nominal spending/money supply or effective demand expands, or when fewer goods and services are available for a given demand.
Statement/Pair-wise Analysis:
Statement/Item 1: Correct - More money chasing a similar quantity of goods can generate inflation.
Statement/Item 2: Correct - A fall in aggregate output can push up prices through supply constraints.
Statement/Item 3: Correct - Higher effective demand relative to supply can produce demand-pull inflation.
Option-wise Analysis:
A: Incorrect - excludes true items 2, 3.
B: Incorrect - excludes true item 3.
C: Incorrect - excludes true item 1.
D: Correct - selects all and only the accurate statements/pairs.