SSC MTS / SSC GD Exam > SSC MTS / SSC GD Questions > What is inflation?a)Increase in the money sup...
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What is inflation?
- a)Increase in the money supply
- b)Decrease in the general price level
- c)Increase in the general price level
- d)Decrease in the money supply
Correct answer is option 'C'. Can you explain this answer?
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What is inflation?a)Increase in the money supplyb)Decrease in the gene...
Understanding Inflation
Inflation refers to the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power. It is measured as an annual percentage change.
Key Characteristics of Inflation:
- Increase in General Price Level:
Inflation signifies that the average prices of goods and services in an economy are rising. This means that over time, each unit of currency buys fewer goods and services.
- Causes of Inflation:
- **Demand-Pull Inflation:** Occurs when demand for goods and services exceeds supply, leading to higher prices.
- **Cost-Push Inflation:** Happens when the costs of production increase (like wages and materials), prompting producers to raise prices to maintain profit margins.
- **Built-In Inflation:** Results from adaptive expectations, where businesses and workers expect prices to rise and adjust their behavior accordingly.
- Effects of Inflation:
- **Decreased Purchasing Power:** As prices rise, the value of money decreases, meaning consumers can buy less with the same amount of money.
- **Interest Rates:** Central banks may raise interest rates to control inflation, which can affect borrowing and spending.
- **Wage Adjustments:** Workers may demand higher wages to keep up with rising prices, which can contribute to a wage-price spiral.
Conclusion:
In summary, the correct answer is option 'C' because inflation is fundamentally defined as the increase in the general price level of goods and services in an economy over time. Understanding inflation is crucial for economic stability and personal financial planning.
Inflation refers to the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power. It is measured as an annual percentage change.
Key Characteristics of Inflation:
- Increase in General Price Level:
Inflation signifies that the average prices of goods and services in an economy are rising. This means that over time, each unit of currency buys fewer goods and services.
- Causes of Inflation:
- **Demand-Pull Inflation:** Occurs when demand for goods and services exceeds supply, leading to higher prices.
- **Cost-Push Inflation:** Happens when the costs of production increase (like wages and materials), prompting producers to raise prices to maintain profit margins.
- **Built-In Inflation:** Results from adaptive expectations, where businesses and workers expect prices to rise and adjust their behavior accordingly.
- Effects of Inflation:
- **Decreased Purchasing Power:** As prices rise, the value of money decreases, meaning consumers can buy less with the same amount of money.
- **Interest Rates:** Central banks may raise interest rates to control inflation, which can affect borrowing and spending.
- **Wage Adjustments:** Workers may demand higher wages to keep up with rising prices, which can contribute to a wage-price spiral.
Conclusion:
In summary, the correct answer is option 'C' because inflation is fundamentally defined as the increase in the general price level of goods and services in an economy over time. Understanding inflation is crucial for economic stability and personal financial planning.
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What is inflation?a)Increase in the money supplyb)Decrease in the gene...
Inflation refers to the sustained increase in the general price level of goods and services over a period of time, leading to a decrease in the purchasing power of money.
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What is inflation?a)Increase in the money supplyb)Decrease in the general price levelc)Increase in the general price leveld)Decrease in the money supplyCorrect answer is option 'C'. Can you explain this answer?
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