The answer to the above question is (c). The explanation is: | ECONOMY by VIVEK SINGH

The answer to the above question is (c). The explanation is:

If the lockdown continues and Govt. will give fiscal stimulus which means govt may reduce tax or give subsidies or cash to the people or businessmen then it will increase aggregate (total) demand in the economy. But if this demand is not met by producing/supplying the goods and services by unlocking the economy/businesses then it will definitely result in inflation.

If the aggregate (total) demand in the economy increases by 10% and supply (of goods and services) also increases by 10% then there will not be an increase in effective demand and the inflation will not increase. But if the aggregate demand increases by 10% and supply just increases by 6% then there will be effective demand of 4% in the economy and this results in inflation. That demand which is not met by supply results in effective demand. Effective demand increase in the economy necessarily increases inflation.

In the above question as the lockdown is continuing and govt giving stimulus so, aggregate demand as well as effective demand both will increase resulting in inflation.