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Assertion (A): Inflation reduces the purchasing power of money. Reason (R): During inflation, the general price level rises.

1. Both A and R are true, and R is the correct explanation of A.
2. Both A and R are true, but R is not the correct explanation of A.
3. A is true, but R is false.
4. A is false, but R is true.

Correct answer: Both A and R are true, and R is the correct explanation of A.

Solution

Inflation means a rise in the general price level. When prices rise, the purchasing power of money falls, so both the assertion and reason are true, and the reason correctly explains the assertion.

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