Concept:Inflation is a sustained rise in the general price level caused by too much money chasing too few goods.
Explanation:Inflation may occur when total demand in the economy exceeds total supply at the prevailing prices.
This situation is called excess demand or demand-pull inflation.
When there is excessive demand with limited supply, consumers compete to buy scarce goods.
This competition pushes prices higher.
Producers may not be able to increase output immediately because resources are already fully employed.
Therefore, prices continue to rise without a corresponding increase in output and employment.
The purchasing power of money falls because more money is chasing fewer goods.
Excess supply over demand would lower prices rather than raise them.
An increase in productivity would raise supply and reduce price pressure.
Increased government spending in a depressed economy can expand output without necessarily causing inflation.
Answer:C. excessive demand with limited supply