5. Inflation
Inflation is a sustained increase in the general price level of goods and services, which diminishes the purchasing power of money. It can take various forms, such as creeping, walking, running, and hyperinflation, and can arise from factors like demand-pull or cost-push dynamics. The effects of inflation are wide-ranging, impacting consumers, producers, and the overall economy, and necessitating various control measures from monetary and fiscal policies to supply-side strategies.
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What we have learnt
- Inflation refers to the sustained rise in general price levels, decreasing the purchasing power of money.
- Types of inflation include creeping, walking, running, and hyperinflation based on the rate, and demand-pull or cost-push based on causes.
- Measures to control inflation encompass monetary, fiscal, and supply-side strategies.
Key Concepts
- -- Inflation
- The rate at which the general level of prices for goods and services is rising, leading to a decrease in the purchasing power of money.
- -- DemandPull Inflation
- A type of inflation caused by an increase in demand that outstrips supply.
- -- CostPush Inflation
- Inflation that arises from an increase in the costs of production, such as wages and raw material prices.
- -- Creeping Inflation
- A slow and steady rise in prices, usually defined as less than 3% per annum.
- -- Hyperinflation
- An extremely high and out-of-control rate of inflation, often exceeding 50% per month.
- -- Monetary Measures
- Actions taken by a country's central bank to manage the money supply and interest rates to control inflation.
- -- Fiscal Measures
- Government policies regarding taxation and public expenditure aimed at controlling inflation.
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