GS PrelimsEconomyEconomic Growth2011

Economic growth is usually coupled with

A

Deflation

B

Inflation

C

Stagflation

D

Hyperinflation

Correct Answer: Option B

Explanation

1. Economic growth signifies an increase in the aggregate demand and output of an economy. 2. As incomes rise and unemployment falls during economic growth, consumer spending typically increases. 3. If this increased demand outpaces the economy's productive capacity (supply), prices tend to rise, leading to demand-pull inflation. 4. Therefore, economic growth is usually coupled with inflation, often considered a trade-off managed by central banks. 5. Deflation (falling prices) is typically associated with recessions or depressions, not growth. 6. Stagflation involves stagnant growth combined with inflation. 7. Hyperinflation represents extreme, runaway inflation, not a typical consequence of normal economic growth.

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