Question

1. Explain the meaning of inflation and deflation with relevant examples

2.Explain the cost of inflation with relevant examples

3. Explain the causes and effects inflation and deflation with relevant examples

Answer 1

1.Inflation means the rates in which prices of goods and services increase.Inflation affect all badly.because due to inflation there is hike in all goods and services.Consumer's are unable to purchase more goods and services because his income is limited but market price of goods and services rises rapidly.hence his purchasing capacity is goes down.Like - petrol

Deflation is opposite of inflation because in deflation price goes down.deflation is a rate in which prices of goods and services goes down.it is a situation in which inflation falls down even below zero percentage.

2.cost of inflation means that cost which is occurred due to inflation.If we are talking about inflation then there are too many costs which is occured due to inflation.Due to inflation investment goes down becuase people are uncertain about rates .they do not have higher income .Their saving declined day by day because prices of goods and services are rises hence he have to pay more.Economy is at boom situation.Consumers real income goes down.

3.causes and effect of inflation and deflation-

Causes - Inflation is caused by the law of demand .When there is excess supply of currency happen and due to excess supply their demand is affected.Excess supply reduced the value of Currency.Inflation is caused because national debts are increases.there are too many causes like demand pull effect, cost push effect etc.Inflation is happens due to foreign exchange rate.

Effect - Due to inflation saving is rises ,people will try to spend less .They will try to invest in long term investment .they will try to save more.

Causes - Deflation is caused due to law of demand concept.when supply of currency is decreases then deflation happens.When there is change's in capital market.When productivity is increases then deflation is happened.

Effect- Revenue is goes down because prices is goes down below then its cost.Wages is goes .Pay off is decreases.