Question

In India main causes of inflation are _______.

• A. population growth
• B. rapid urbanisation
• C. rise in employment and income level
• D. all the three

Answer 1

Answer: (D)

all the three

Inflation is an economic situation where the general price level in the economy for all the relevant goods has a constant appreciable rise over a considerable period of time. The main causes behind inflation are:

(i) Population growth: If there is increase in population then the aggregate demand will increase in the economy with no increase in the aggregate supply which will lead in excess demand in the economy and results in inflation.

(ii) Rapid urbanization: If there is rapid urbanization in the economy then it will lead to increase in demand and consumption for all the goods and services in the economy with very slow increase in the supply of this goods and services which will lead to excess demand and result in inflation.

(iii) Rise in employment and income level: If the employment and income level in the economy rises, then it will increase the real income of the people which will increase the public expenditure due to which the demand for all the goods and services in the economy will increase with very small change in supply which will lead to excess demand and result in inflation.