Question

Excess of money supply as compared to supply of goods results in

• A. Depression
• B. Deflation
• C. Trade deficit
• D. Inflation

Hint:

Too much money chasing too few goods pushes the general price level in one direction.

Answer 1

The Correct Option is D

Picture a small market where the number of goods stays fixed but every buyer suddenly has twice the cash. Sellers see the same shelves and more eager buyers, so they raise their prices. That picture is the whole question. Now test the options.

1. Depression: A depression is a deep, long slump in production, incomes and jobs, like the one that started in 1929. It comes with weak demand and usually falling prices, so extra money is not what causes it.
2. Deflation: Deflation is a lasting fall in the general price level. It shows up when money is scarce relative to goods, which is the reverse of what the question describes.
3. Trade deficit: A trade deficit means the value of imports is more than the value of exports. It is measured in the external account and is not the direct outcome of printing or lending more money at home.
4. Inflation: Inflation is a steady rise in the general price level, which lowers what each rupee can buy. Too much money chasing too few goods is the standard textbook line for demand pull inflation, so this matches the question word for word.

Option (D) is correct because more money against unchanged output pushes prices up.

Let's summarize:

• Money grows faster than goods, prices rise, that is inflation.
• Deflation is falling prices, depression is a deep output slump, trade deficit is an import export gap.

So the result is inflation.