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    Question

    Which of the following can be the reasons for Inflation

    in India?
    A The inadequate rise in industrial production Correct Answer Incorrect Answer
    B Erratic agricultural growth Correct Answer Incorrect Answer
    C Deficit financing Correct Answer Incorrect Answer
    D Only a & b Correct Answer Incorrect Answer
    E a, b, & c Correct Answer Incorrect Answer

    Solution

    If there is inadequate rise in the industrial production the supply for the generally demanded goods will become low leading to the excess demand for those due to which there will be the rise in general price level for those goods. Due to the low agricultural productivity the aggregate supply will be low but the aggregate demand will remain intact which will increase the general price level owing to excess demand. Deficit financing means generating funds to finance the deficit which results from the excess of expenditure over revenue. Deficit Financing is inherently inflationary, it increases the aggregate expenditure of the government thus increases the aggregate demand in the market leading the rise in the prices for goods and services in the country.

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