A rise in general level of prices may be caused by 1. an increase in the money supply

Monjur Alahi

A rise in general level of prices may be caused by

1. an increase in the money supply

2. a decrease in the aggregate level of output

3. an increase in the effective demand

Select the correct answer using the codes given below.

(a) 1 only (b) 1 and 2 only (c) 2 and 3 only (d) 1, 2 and 3


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Salim Ahmed Kawsar

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(d) General Price rise may be caused by an increase in the money supply as the real value of the money reduces. The higher aggregate price level will reduce the purchasing power subsequently reducing the consumer spending. Effective demand also increases when there is less purchasing power due to inflation.

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