Question
UPSC Prelims 2015 Question:
With reference to inflation in India, which of the following statements is correct?
Answer (Detailed Solution Below)
Option 3: Decreased money circulation helps in controlling the inflation
Detailed Solution
Explanation:
- Inflation is a rise in prices, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time.
- It is often described as a situation where too much money chases too few goods. In such a scenario, reduction in money supply can help in controlling inflation.
- Reduction in money supply leads to a decline in excess demand and leads to a reduction in market price.
Therefore, option (3) is the correct answer.
Subject: Economics | Inflation
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