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    Question

    Which of the following can be the outcomes of very high inflation in the economy?

    (1) Reduction in economic growth

    (2) Increase in savings

    (3) Reduction in exports

    Select the correct answer using the codes below :

    A 1 and 4 only Correct Answer Incorrect Answer
    B 3 and 4 only Correct Answer Incorrect Answer
    C 2 and 3 Correct Answer Incorrect Answer
    D 1 and 3 only Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    Inflation is a persistent increase in the general price level of goods and services in an economy over a period of time . When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value .High inflation means excessive supply of money and thus leads to rise in the cost of credit and interest rates.

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