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Determination of Income and Employment — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsDetermination of Income and Employment3 Marks
Question
Explain how increase in money supply causes inflation.
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Answer

Money is controlled by the Central Bank of the country as RBI in India. Increase in money supply by the Central Bank leads to increase in liquidity in the economy. Again, increased liquidity causes excess demand for goods and services and if the economy is already operating to its full potential, then it would end up causing inflation.

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