Meaning & Types: Inflation Video Lecture | RBI Grade B Phase 1 Preparation - Bank Exams

Ans. Inflation refers to the sustained increase in the overall price level of goods and services in an economy over a period of time. It erodes the purchasing power of a currency, as the same amount of money can buy fewer goods and services.

Ans. There are several types of inflation: - Demand-pull inflation: This occurs when there is an increase in aggregate demand, leading to an excess demand for goods and services, causing prices to rise. - Cost-push inflation: This occurs when the cost of production increases, such as due to an increase in wages or raw material prices, leading to a rise in prices. - Built-in inflation: This occurs when past inflation expectations influence current inflation rates, such as when workers demand higher wages to keep up with expected future price increases. - Hyperinflation: This is an extremely high and typically accelerating inflation, often leading to the breakdown of the economy's monetary system. - Stagflation: This is a combination of stagnant economic growth, high unemployment, and high inflation, which is often difficult to address as the usual policy measures may contradict each other.

Ans. Inflation can be caused by various factors, including: - Increase in money supply: When there is an excessive increase in the money supply in an economy without a corresponding increase in goods and services, it can lead to inflation. - Demand factors: If there is a surge in consumer spending or an increase in government spending, it can create excess demand and push up prices. - Supply-side shocks: Disruptions in the supply of key inputs, such as oil or agricultural products, can lead to cost-push inflation. - Expectations: If people anticipate future price increases, they may adjust their behavior accordingly, causing inflation. - Exchange rates: Changes in exchange rates can affect the price of imported goods and impact inflation.

Ans. Inflation is measured using various indicators, but the most commonly used measures are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). The CPI measures the average change over time in the prices paid by urban consumers for a basket of goods and services, while the WPI measures the average change in the selling prices received by domestic producers for their goods and services. These indices provide insights into the general price trends in an economy.

Ans. Inflation can have both positive and negative effects on the economy. Some of the effects include: - Reducing purchasing power: Inflation erodes the purchasing power of money, meaning that individuals can buy fewer goods and services with the same amount of money. - Redistribution of wealth: Inflation can impact different groups of people differently. For example, borrowers benefit from inflation as they repay loans with money that is worth less, while savers may suffer as the value of their savings decreases. - Uncertainty: High inflation rates can create uncertainty about future prices, making it difficult for businesses and individuals to plan and make informed decisions. - Reduced investment: High inflation can discourage investment as it increases the cost of borrowing and reduces the value of future returns. - Wage-price spiral: Inflation can lead to a cycle of rising wages and prices as workers demand higher wages to keep up with rising prices, which further fuels inflation.