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Inflation - Economics, UPSC IAS Exam Preparation Video Lecture | Indian Economy (Prelims) by Shahid Ali
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FAQs on Inflation - Economics, UPSC IAS Exam Preparation Video Lecture - Indian Economy (Prelims) by Shahid Ali
| 1. What is inflation? |  |
Ans. Inflation refers to the sustained increase in the general price level of goods and services in an economy over a period of time. It is often measured as an annual percentage increase and can erode the purchasing power of money. Inflation can be caused by various factors such as increased demand, supply shocks, changes in government policies, or changes in the money supply.
| 2. How is inflation measured? | |
Ans. Inflation is typically measured using various price indices, with the most commonly used being the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). These indices track the changes in the prices of a basket of goods and services over time. By comparing the current prices with a base year, the inflation rate can be calculated.
| 3. What are the effects of inflation on the economy? | |
Ans. Inflation can have several effects on the economy. Firstly, it reduces the purchasing power of money, as the same amount of money can buy fewer goods and services. This can lead to a decrease in consumer spending and investment. Secondly, inflation can affect the distribution of income and wealth, as those with fixed incomes or assets may suffer while those with flexible incomes or assets may benefit. Additionally, inflation can also impact the borrowing and lending behavior, as lenders may charge higher interest rates to compensate for the eroding value of money.
| 4. How does the government control inflation? | |
Ans. Governments use various monetary and fiscal policies to control inflation. Monetary policies include actions by the central bank, such as increasing interest rates, reducing the money supply, or changing reserve requirements for banks. Fiscal policies involve changes in government spending and taxation to influence aggregate demand. These measures aim to reduce excessive demand in the economy, thereby curbing inflationary pressures.
| 5. What are the different types of inflation? | |
Ans. There are several types of inflation based on their causes and effects. Demand-pull inflation occurs when aggregate demand exceeds the available supply of goods and services. Cost-push inflation happens when the costs of production, such as wages or raw materials, rise and are passed on to consumers. Built-in inflation refers to the expectations of future inflation that become self-fulfilling. Hyperinflation is an extreme form of inflation characterized by an extremely rapid and out-of-control increase in prices.
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Oct 31, 2024 Last updated |
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