Question

Q. Consider the following statements related to Inflation:

Which of the above statements is/are correct?

• A. 1 only
• B. 2 only
• C. Both 1 and 2
• D. Neither 1 nor 2

Answer 1

The correct option is D Neither 1 nor 2

Explanation:

Statement 1 is incorrect: When the overall price level decreases so that the inflation rate becomes negative, it is called deflation. It is the opposite of inflation. This situation is usually seen when there is a sudden decrease in the supply of money or a drastic decrease in the demand for the products as was seen during the Great Depression.

Statement 2 is incorrect: Disinflation is the condition of temporary slowing down in the rate of inflation. It is common during the growth cycle and prevents the economy from overheating. Disinflation in this regard shows the rate of change of inflation over time.