Question
Consider the following statements about inflation:
1. Inflation erodes the purchasing power of money. 2. Cost-push inflation occurs due to an increase in the cost of production. 3. Inflation is always harmful to the economy. Which of the above statements are correct?Solution
Inflation erodes the purchasing power of money (statement 1) and cost-push inflation arises when production costs increase (statement 2). However, inflation is not always harmful, as mild inflation can stimulate economic growth (statement 3 is incorrect).
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