Question

Assertion (A): During inflation, there is increase in money supply and rise in price level.

Reason (R): The rise in prices is due to shortage in supply of essential consumer goods.

Options

• Both A and R are individually true and R is the correct explanation of A.

• Both A and R are individually true but R is not the correct explanation of A

• A is true but R is false

• A is false but R is true

Answer 1

Both A and R are individually true and R is the correct explanation of A.

Explanation:

Inflation occurs due to imbalance between supply and demand of money. The price level of goods and services rise, the value of currency reduces leading each unit of currency buys fewer goods and services.  Thus option (b) is upheld as both A & R are correct but R is not correct explanation of A.