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    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?
    A 1 and 2 only Correct Answer Incorrect Answer
    B 2 and 3 only Correct Answer Incorrect Answer
    C 1 and 3 only Correct Answer Incorrect Answer
    D 1, 2, and 3 Correct Answer Incorrect Answer

    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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