A rise in general level of prices may be caused by 1. an increase in the money supply 2. a decrease in the aggregate level of output 3. an increase in the effective demand Select the correct answer using the codes given below.

All three statements are right, so D is correct. Prices rise when demand for goods and services outruns their supply, and each statement works on one side of that gap.

• Statement 1 (increase in money supply): More money chasing the same goods pushes up prices. This is the quantity theory logic, MV = PT, and the core of the monetarist explanation of inflation.
• Statement 2 (decrease in aggregate output): Falling output with demand unchanged shrinks supply, so prices rise. Supply shocks such as a weak monsoon hitting food output work this way.
• Statement 3 (increase in effective demand): Higher aggregate demand from consumption, investment or government spending lifts prices when the economy is near full capacity. This is demand-pull inflation in Keynesian terms.

Concept: demand-pull versus cost-push and supply-side inflation. Mains angle: GS-III on food inflation and the RBI's inflation-targeting framework, where the Monetary Policy Committee was given statutory backing through the 2016 amendment to the RBI Act.

Trap: aspirants assume a fall in output lowers prices, or that only monetary factors cause inflation. Both are false. Supply shocks and demand pressures each raise prices independently.