Introduction to Inflation: Price & Inflation Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

Ans. Inflation refers to the general increase in prices of goods and services over time. When inflation occurs, the purchasing power of money decreases, meaning that the same amount of money buys fewer goods or services. This can be due to various factors, such as increased production costs, changes in consumer demand, or changes in government policies. Ultimately, inflation leads to a decrease in the value of money and can impact the cost of living for individuals and businesses.

Ans. Inflation can be caused by several factors, including: 1. Demand-pull inflation: This occurs when there is an increase in consumer demand for goods and services that exceeds the supply. As a result, prices rise to balance the demand and supply. 2. Cost-push inflation: This type of inflation is caused by an increase in production costs, such as wages or raw material prices. When businesses face higher costs, they often pass them on to consumers through higher prices. 3. Monetary inflation: When there is an increase in the money supply in an economy, it can lead to inflation. This can occur due to factors like excessive government spending, expansionary monetary policy, or printing more money. 4. Imported inflation: If a country heavily relies on imports, changes in the exchange rate or global commodity prices can lead to inflation. When the prices of imported goods increase, it can affect the overall price level in the country.

Ans. There are several types of inflation: 1. Creeping inflation: This refers to a low and gradual increase in prices over time, typically in the range of 1-3% annually. 2. Galloping inflation: Galloping inflation is characterized by a rapid and accelerating increase in prices, often in double or triple digits. It can lead to a loss of confidence in the currency and economic instability. 3. Hyperinflation: Hyperinflation is an extreme form of inflation where prices increase at an extremely high rate, typically exceeding 50% per month. It can result in a complete breakdown of the economy and the devaluation of the currency. 4. Stagflation: Stagflation occurs when there is a combination of high inflation and high unemployment, which is considered unusual as inflation is commonly associated with economic growth.

Ans. Inflation is commonly measured using various economic indicators, including: 1. Consumer Price Index (CPI): The CPI measures the average change in prices of a basket of goods and services commonly consumed by households. It provides an indication of the inflation rate experienced by consumers. 2. Producer Price Index (PPI): The PPI measures changes in the prices received by producers at various stages of production. It reflects price changes before they reach consumers and can be an early indicator of future inflation. 3. GDP Deflator: The GDP deflator measures the average price level of all goods and services produced in an economy. It is calculated by dividing the nominal GDP by the real GDP and multiplying by 100. 4. Core Inflation: Core inflation excludes volatile price components, such as food and energy, to provide a more stable measure of underlying inflation trends.

Ans. Inflation can have both positive and negative impacts on investments: 1. Negative impact: Inflation erodes the purchasing power of money over time, which can reduce the real value of investment returns. If the rate of return on investments is lower than the inflation rate, investors may experience a loss in purchasing power. 2. Positive impact: Certain investments, such as stocks, real estate, and commodities, have the potential to provide returns that outpace inflation. These assets can act as a hedge against inflation and help investors maintain or increase their purchasing power. 3. Bond investments: Inflation can negatively affect bond investments as it erodes the fixed interest payments received from bonds. However, inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS), can provide protection against rising inflation.