Question

Inflation is defined as a. a period of rising productivity in the economy. b. a period of rising income in the economy. c. an increase in the overall level of output in the economy. d. an increase in the overall level of prices in the economy.

Answer 1

Answer:

The correct answer is option d.

Explanation:

Inflation can be defined as a continuous rise in the general price level of goods and services in an economy for a long period. It causes a decline in the purchasing power of money.

Inflation can be of three types,

1. Demand-pull inflation
2. Cost-push inflation
3. Built-in inflation

Inflation can occur because of a number of reasons. It basically happens because aggregate supply cannot be increased to a great extent to cope up the excessive increase in the aggregate demand.

The consumer price index is a tool to measure inflation rate. Other tools to measure inflation are the wholesale price index, producer price index, etc.