Question

1. Define inflation, explain the different types of inflation and discuss the curse of inflation.

2. Which of them is or will more likely become a reality in our time of pandemic?

Answer 1

INFLATION can be defined as the persistent erise in the general price level of an economy. in other words,Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.
• Thus, inflation is the GENERAL RISE in the prices of goods and services in an economy OVER A PERIOD OF TIME

There are various types of inflation-

ON THE BASIS OF CAUSES-

1 Demand Pull Inflation
• Demand-pull inflation occurs when the overall demand for goods and services in an economy increases more rapidly than the economy's production capacity.
• It creates a demand-supply gap with higher demand and lower supply, which results in higher prices.
• It starts with an increase in consumer demand. Sellers meet such an increase with more supply. But when additional supply is unavailable, sellers raise their prices.
• It is commonly described as “too much money chasing too few goods”.
• It is generally good for the economy (in manageable figures) as it stimulates expansion in the long run.

2 Cost Push Inflation
• It is caused when the prices of the goods and services rise due to the increase in the production cost or due to the decrease in the volume of production.
• Cost-push inflation means prices have been ‘pushed up’ by increase in the costs of any of the four factors of production (labour, capital, land or entrepreneurship).
• Now here the firms respond to the rising costs by increasing the costs of the products and services in order to protect their profit margins thus leading to cost-push inflation.
• Cost-push inflation occurs when the demand is inelastic.

3 Currency Inflation

It is caused by the printing of currency notes.

4 Credit Inflation

It is caused by excess expansion of credit by commercial banks leading to a rise in the general price level of the economy

ON THE BASIS OF SPEED-

1 CREEPING-

IT IS ALSO KNOWN AS MILD INFLATION. IT OCCURS WHEN THE RISE IN PRICES IN 3% A YEAR OR LESS.

2 WALKING INFLATION-

It lies in the range 3-10%. It is harmful to the economy as it tiggers off the economy too fast

3 GALLOPING INFLATION

When inflation is above 10% or more.

4. HYPERINFLATION

When prices jump by more than 50% a month