{"id":1983,"date":"2024-03-31T00:21:44","date_gmt":"2024-03-30T18:51:44","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1983"},"modified":"2024-04-03T07:01:02","modified_gmt":"2024-04-03T01:31:02","slug":"q-a-rise-in-general-level-of-prices-may-be-caused-by","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-a-rise-in-general-level-of-prices-may-be-caused-by","title":{"rendered":"Q.\u00a0A rise in general level of prices may be caused by"},"content":{"rendered":"\n<ol class=\"wp-block-list\">\n<li>an increase in the money supply<\/li>\n\n\n\n<li>a decrease in the aggregate level of output<\/li>\n\n\n\n<li>an increase in the effective demand<\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\">Select the correct answer using the codes given below.<\/p>\n\n\n\n<ul class=\"mcq wp-block-list\">\n<li>1 only<\/li>\n\n\n\n<li>1 and 2 only<\/li>\n\n\n\n<li>2 and 3 only<\/li>\n\n\n\n<li>1, 2 and 3<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer: (d) 1, 2 and 3<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"notes\">Notes:<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The increase in the general level of prices may be caused by many factors like&nbsp;<strong>an increase in the money supply, a decrease in the aggregate level of output, an increase in the effective demand, an increase in income, the rapid growth of population, etc.<\/strong><\/li>\n\n\n\n<li>Increase in general price level or inflation has two influencing factors\u00a0<strong>Demand-pull inflation and Cost-push inflation.<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Demand-pull inflation&nbsp;<\/strong>occurs when<strong>&nbsp;aggregate demand for goods and services in an economy rises more rapidly than an economy\u2019s productive capacity<\/strong>. One potential shock to aggregate demand might come from a central bank that rapidly increases the supply of money.\n<ul class=\"wp-block-list\">\n<li>The &nbsp;<strong>decrease in aggregate level of output&nbsp;<\/strong>and increase in the effective demand also lead to inflation.<\/li>\n\n\n\n<li>The increase in the&nbsp;money supply will generate inflation and<strong>&nbsp;increase&nbsp;more customer spending<\/strong>. The rate of interest will become low.<\/li>\n\n\n\n<li>Various variables might cause an increase in aggregate demand. Some of them are\n<ul class=\"wp-block-list\">\n<li>Fiscal Stimulus<\/li>\n\n\n\n<li>Population Pressure<\/li>\n\n\n\n<li>Increase in Net Exports<\/li>\n\n\n\n<li>Monetary Stimulus<\/li>\n\n\n\n<li>Policy Decisions<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Cost-push inflation, on the other hand,\u00a0<strong>occurs when prices of production process inputs increase.<\/strong>\n<ul class=\"wp-block-list\">\n<li>The following reasons can cause production costs to rise.\n<ul class=\"wp-block-list\">\n<li>Employees\u2019 salaries being raised<\/li>\n\n\n\n<li>Raw material prices increasing<\/li>\n\n\n\n<li>Firms profit margins<\/li>\n\n\n\n<li>Import prices<\/li>\n\n\n\n<li>Increase in indirect taxes<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h6 class=\"wp-block-heading\" id=\"Impact\">Impact of Inflation<\/h6>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Positive Impacts<\/strong>:\n<ul class=\"wp-block-list\">\n<li><strong>Increased Profits for Producers<\/strong>\n<ul class=\"wp-block-list\">\n<li>In most cases, inflation benefits the producers of goods. They make more money because they can sell their products at higher prices.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Increased Investment Returns<\/strong>\n<ul class=\"wp-block-list\">\n<li>During periods of inflation, investors and entrepreneurs are given additional incentives to invest in productive activities. As a result, they benefit from higher returns.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Increase in production output<\/strong>\n<ul class=\"wp-block-list\">\n<li>When producers receive the appropriate investment, they produce more goods and services. As a result, inflation causes an increase in product\/service production.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Negative Impacts<\/strong>:\n<ul class=\"wp-block-list\">\n<li><strong>Real-Income falls for groups with fixed income.<\/strong>\n<ul class=\"wp-block-list\">\n<li>An individual\u2019s true income is the purchasing power of his income money. To put it another way, Real Income=Money Income\/Price Level.<\/li>\n\n\n\n<li>This means that people on fixed incomes, such as salaried workers, pensioners, and the like, will see a drop in real income. To put it another way, their purchasing power will reduce.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Income Distribution Inequality Rises<\/strong>\n<ul class=\"wp-block-list\">\n<li>Profits for business owners and entrepreneurs rise as a result of inflation.<\/li>\n\n\n\n<li>As a result, income inequality becomes more pronounced during this time period.<\/li>\n\n\n\n<li>People in fixed-income groups, on the other hand, see a decrease in their real income.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Disturbs the Planning Process<\/strong>\n<ul class=\"wp-block-list\">\n<li>Inflation raises the prices of goods, raw materials, and factor services. As a result, the government must&nbsp;<strong>spend more money to complete any investment project<\/strong>&nbsp;initiated during the planning period.<\/li>\n\n\n\n<li>If the government fails to raise more financial resources through savings or taxation, the entire planning process is thrown off.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Select the correct answer using the codes given below. Answer: (d) 1, 2 and 3 Notes: Impact of Inflation<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[60],"class_list":["post-1983","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-60"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":60,"label":"2013"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1983","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1983"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1983\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1983"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1983"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1983"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1983"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}