A rise in the general level of prices in an economy may be caused by which of the following factors?

Introduction / Context:
A sustained rise in the general level of prices is called inflation. Understanding the causes of inflation is an important part of macroeconomics and is frequently tested in competitive exams. Inflation can arise from several sources, including excess money supply, strong demand and supply side constraints. This question asks which of the given factors may lead to a rise in the general price level, so it checks whether the candidate recognises that inflation can have multiple causes.

Given Data / Assumptions:

• The general price level refers to the average of prices of goods and services in the economy.
• Options mention an increase in money supply, an increase in effective demand and a decrease in aggregate output.
• Option d states all of the above.
• We assume a standard macroeconomic framework with aggregate demand and aggregate supply.
• Prices are flexible enough to respond to changes in demand and supply over time.

Concept / Approach:
Inflation can be demand pull, cost push or structural. An increase in money supply can boost aggregate demand if more money chases the same amount of goods, which tends to push prices up. An increase in effective demand, even without an immediate change in money supply, can also raise prices when the economy is near full capacity. A decrease in aggregate output, perhaps due to supply shocks, can lead to fewer goods being available, which again drives up prices if demand remains the same or falls by less. Therefore, each of the three factors mentioned can cause a rise in the general price level, which means the correct answer is all of the above.

Step-by-Step Solution:
Step 1: Consider an increase in the money supply. More money in circulation, if not matched by higher output, tends to increase aggregate demand and can cause demand pull inflation. Step 2: Consider an increase in effective demand, for example due to higher consumption or investment. If supply does not increase proportionately, prices will rise. Step 3: Consider a decrease in aggregate output, such as from a poor harvest or production disruption. With fewer goods available, the price of those goods tends to rise. Step 4: Recognise that each of these situations tends to push the general price level upwards. Step 5: Conclude that all of the factors listed can cause a rise in the general price level and select all of the above.

Verification / Alternative check:
Macroeconomic textbooks typically explain that inflation can result from demand pull factors like increased money supply and higher spending, as well as from supply side factors like reduced output or increased production costs. In many historical episodes of inflation, more than one factor operated at the same time. For example, monetary expansion combined with supply bottlenecks can produce strong inflationary pressures. Because each option corresponds to a recognised cause of inflation, it is logical that the comprehensive correct answer is all of the above rather than only one specific factor.

Why Other Options Are Wrong:
An increase in the money supply: On its own this can cause inflation, but the option becomes incomplete when other valid causes are also listed, so by itself it is not the best answer when all causes are asked for. An increase in the effective demand: Similarly, this is a correct cause but not the only one, so choosing this alone would ignore the role of money supply and supply side changes. A decrease in the aggregate level of output: This describes supply side inflation but again does not cover the full range of causes listed in the question. Any blank option: Not applicable, as the question clearly identifies multiple realistic causes.

Common Pitfalls:
Some students mistakenly believe that inflation is always and only a monetary phenomenon and may therefore choose only the money supply option. Others may focus only on demand pull explanations and ignore supply shocks. The safest strategy in such multiple cause questions is to check each statement individually and see whether it realistically raises prices when other conditions are held constant. When all statements describe genuine inflationary influences, then all of the above is the correct choice. Regular practice with examples of different types of inflation helps to internalise this understanding.

Final Answer:
A rise in the general level of prices may be caused by an increase in the money supply, an increase in effective demand or a decrease in aggregate output, so the correct option is All of the above.