Which of the following statements is/are correct? 1. High growth will lead to inflation. 2. High growth will lead to deflation. Select the correct answer using the code given below : Code :

Economic growth is generally directly proportional to inflation [3]. High economic growth typically leads to demand-pull inflation, which occurs when aggregate demand from households, private sectors, and governments increases concurrently. In an expanding economy, this excessive demand—often described as 'too much money chasing too few goods'—outpaces the economy's production capacity, causing prices to rise. Historical data shows that high growth rates, such as those seen in the late 1980s, frequently correlate with rising inflation. Conversely, deflation is characterized by a decrease in general price levels and is invariably associated with recession or negative growth rather than high growth [1]. While low and stable inflation can support long-term growth, rapid expansion without corresponding supply-side growth triggers inflationary pressures [1]. Therefore, statement 1 is correct as high growth leads to inflation, while statement 2 is incorrect as deflation is linked to economic contraction.

Sources

1. [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > There are mainly two causes of inflation: > p. 112
2. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > Deflation > p. 74