Question:medium

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

Inflation can be produced from either side of the market. Demand can pull prices up, or supply can push them up. Sorting this question out is just a matter of seeing which side each statement is standing on.

  1. Both A and R are individually true and R is the correct explanation of A: Wrong. The assertion is a demand side story (more money in circulation). The reason is a supply side story (fewer goods available). A reason drawn from the opposite side of the market cannot be the explanation of the assertion.
  2. Both A and R are individually true but R is not the correct explanation of A: Correct. Read alone, the assertion is true: money supply growth and a rising price level are the classic signature of inflation. Read alone, the reason is also true: when essential goods run short, sellers raise prices. But the reason does not account for the money supply increase named in the assertion.
  3. A is true but R is false: Wrong. Scarcity of essential goods genuinely lifts prices, so the reason is not a false sentence.
  4. A is false but R is true: Wrong. The assertion states the settled position that inflation runs together with a rise in money supply and in the general price level.

Think of it with a simple picture. In the assertion, the stock of goods stays put and the pile of money grows, so each rupee is worth less. In the reason, the pile of money stays put and the stock of goods shrinks, so each unit of goods commands more rupees. The prices move up in both cases, but the engine driving them is different.

Let's summarize:

  • Assertion: true, describes demand side or monetary inflation.
  • Reason: true, describes supply side or scarcity driven price rise.
  • Two different causes, so the reason cannot explain the assertion.

So both statements are true, the reason does not explain the assertion, and option (B) is the answer.

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Top Questions on Assertion and Reason

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