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Consider the following statements.
1. Rising inflation indicates rising aggregate demand and indicates comparatively lower supply and higher purchasing capacity among the consumers
2. Higher inflation suggests the producers to increase their production level as it is generally considered as an Inflation of higher demand in the economy
Which of these statements is/are incorrect?
- a)1 Only
- b)2 Only
- c)None of them
- d)Both 1 and 2
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
Consider the following statements.1. Rising inflation indicates rising...
- The first statement says that rising inflation indicates rising aggregate demand, which suggests a comparatively lower supply and higher purchasing capacity among consumers. This is False. Rising inflation could indicate rising demand, but it doesn't necessarily mean there is a higher purchasing capacity among consumers. Inflation can erode purchasing power if wages do not increase at the same rate as prices. Additionally, inflation can also be caused by factors other than aggregate demand, such as increased costs of production or supply chain disruptions.
- The second statement suggests that higher inflation prompts producers to increase their production level as it is generally considered a sign of higher demand. This is false; producers might increase production if they perceive inflation as a sign of increased demand. However, if inflation is caused by supply-side factors (like increased costs of raw materials), higher production levels may not be feasible or profitable. Furthermore, inflation could also be a result of too much money chasing too few goods, which doesn't necessarily mean that demand has increased in real terms — it could just mean that the money supply has increased.
Most Upvoted Answer
Consider the following statements.1. Rising inflation indicates rising...
Explanation:
Both the statements are correct and not incorrect, hence the correct answer is option 'D' - None of them.
Let's understand both the statements in detail:
1. Rising inflation indicates rising aggregate demand and indicates comparatively lower supply and higher purchasing capacity among the consumers:
Inflation is a measure of the rate at which the general level of prices for goods and services is rising and subsequently, the purchasing power of currency is falling. When there is an increase in demand for goods and services, it leads to a corresponding increase in their prices. This increase in prices is known as inflation. Therefore, statement 1 is correct.
2. Higher inflation suggests the producers to increase their production level as it is generally considered as an Inflation of higher demand in the economy:
When the inflation rate is high, it indicates that there is a higher demand for goods and services in the economy. This increased demand leads to an increase in the prices of goods and services. Producers, therefore, tend to increase their production level to meet the demand and take advantage of the higher prices. Therefore, statement 2 is also correct.
Hence, both statements are correct, and the correct option is 'D' - None of them.
Both the statements are correct and not incorrect, hence the correct answer is option 'D' - None of them.
Let's understand both the statements in detail:
1. Rising inflation indicates rising aggregate demand and indicates comparatively lower supply and higher purchasing capacity among the consumers:
Inflation is a measure of the rate at which the general level of prices for goods and services is rising and subsequently, the purchasing power of currency is falling. When there is an increase in demand for goods and services, it leads to a corresponding increase in their prices. This increase in prices is known as inflation. Therefore, statement 1 is correct.
2. Higher inflation suggests the producers to increase their production level as it is generally considered as an Inflation of higher demand in the economy:
When the inflation rate is high, it indicates that there is a higher demand for goods and services in the economy. This increased demand leads to an increase in the prices of goods and services. Producers, therefore, tend to increase their production level to meet the demand and take advantage of the higher prices. Therefore, statement 2 is also correct.
Hence, both statements are correct, and the correct option is 'D' - None of them.
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Consider the following statements.1. Rising inflation indicates rising aggregate demand and indicates comparatively lower supply and higher purchasing capacity among the consumers2. Higher inflation suggests the producers to increase their production level as it is generally considered as an Inflation of higher demand in the economyWhich of these statements is/are incorrect?a)1 Onlyb)2 Onlyc)None of themd)Both 1 and 2Correct answer is option 'D'. Can you explain this answer?
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