Question:

Assertion (A): During inflation, there is increase in money supply and rise in price level.
Reason (R): The rise in prices is due to shortage in supply of essential consumer goods.

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Check which side of the market each statement uses. One talks about extra money, the other about fewer goods. Both raise prices, but they are separate causes.
Updated On: Jul 17, 2026
  • Both A and R are individually true and R is the correct explanation of A
  • Both A and R are individually true but R is not the correct explanation of A
  • A is true but R is false
  • A is false but R is true
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The Correct Option is B

Solution and Explanation

Step 1: Understanding the Question:
This is an assertion-reason question. Two jobs have to be done. First, test each statement on its own for truth. Second, ask whether the reason explains the exact situation described in the assertion. Both parts can be true and the answer can still not be option (A).

Step 2: Testing the Assertion:
Inflation is a sustained rise in the general price level. The assertion links it with an increase in money supply. That link is standard economics: when more money chases the same quantity of goods, each unit of money buys less, so prices climb. Demand-pull inflation works exactly this way. So the assertion is true.

Step 3: Testing the Reason:
The reason says prices rise because essential consumer goods are in short supply. Taken by itself this is also a true statement of economics. A shortfall in supply does push prices up, and that is how cost-push or scarcity driven price rise happens. So the reason is true as a free standing sentence.

Step 4: Does R explain A?
Here the two statements part company. The assertion describes a price rise driven by extra money in the system. The reason describes a price rise driven by a fall in the supply of goods. These are two separate causes of inflation, coming from opposite sides of the market. The reason therefore offers a rival explanation, not the explanation of the situation stated in the assertion. R does not explain A.

Step 5: Why the other options fail:
Option (A) fails because R gives a different cause from the one named in A, so it cannot be the correct explanation.
Option (C) fails because R is not false; shortages really do raise prices.
Option (D) fails because A is plainly true; money supply growth and rising prices are the textbook markers of inflation.

Final Answer:
Both statements stand on their own, but they point to different causes, so R is not the correct explanation of A. The answer is option (B).
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