Question : Assertion: Changes in aggregate supply can cause inflation in an economy.
Reason: Increases in aggregate supply can lead to higher production costs, which in turn can drive up prices and cause inflation.
Option 1: Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
Option 2: Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Option 3: Assertion is correct, but the Reason is incorrect.
Option 4: Assertion is incorrect, but the reason is correct
Correct Answer:
Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
Solution : The correct answer is (A) Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
The Assertion that changes in aggregate supply can cause inflation in an economy is correct. Changes in aggregate supply can indeed contribute to inflationary pressures in an economy.
The Reason provided correctly explains this relationship. Increases in aggregate supply can lead to higher production costs. When production costs rise, businesses may pass on these increased costs to consumers in the form of higher prices for goods and services. This can drive up the overall price level in the economy, leading to inflation.
Therefore, both the Assertion and Reason are correct, and the Reason provides a valid explanation of how changes in aggregate supply can cause inflation in an economy.
