| 1. Inflation is a decrease in price of goods |
| 2. Inflation is caused by excess demand in economy |
| 3. Inflation results from excessive increase in the money supply |
| 4. Inflation effects all segments of the economy |
A) 1 only
B) 2 only
C) 3 only
D) 4 only
Correct Answer: A
Solution :
Inflation is an increase in price of goods. It can be seen as devaluation of the worth of money. A crucial feature of inflation is that price rises are sustained. Once only increase in the rate of, say. Value-added tax, will immediately put up prices, but this does not represent inflation, unless the indirect effects of the VAT rise have repercussions of prices in periods after the direct effects. Accounts of the causes of inflation are numerous. The most popular arguments are that it is caused by excess demand in the economy (demand-pull inflation), that it is caused by high costs (cost-push inflation) and that it results from excessive increases in the money supply (monetarism). Inflation affects all segments of the economy.
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