Arrange the following statements related to Fiscal and Monetary Policy in a logical order.
(A) Reduction in the flow of Money - open market - increasing the tax
(B) Aggregate Demand Increases
(C) Supply could not Match Demand
(D) Income Increases
(E) Inflation - Price Rise
Choose the correct answer from the options given below :
Answer & explanation
Correct answer: option 3
The correct answer is option (3) : (D), (B), (C), (E), (A)
(D), (B), (C), (E), (A) The logical order of the statements is as follows :
1. (D) Income Increases: This could be due to various factors, but let's assume it's a result of a strong economy.
2. (B) Aggregate Demand Increases: As income increases, people tend to spend more, leading to an increase in aggregate demand.
3. (C) Supply could not Match Demand: If production or imports can't keep up with the rising demand, shortages might occur.
4. (E) Inflation - Price Rise:The imbalance between demand and supply, especially when demand outstrips supply, can lead to inflation or a rise in prices.
5. (A) Reduction in the flow of Money - open market - increasing the tax: To control inflation, authorities may resort to measures like reducing the flow of money, using open market operations, or increasing taxes to cool down the economy.