20.Inflation Flashcards
How can inflation be defined?
Inflation can be defined as a situation when there is a persistent increase in the prices of goods and services, which may generate an expectation of a future rise in prices.
How else can inflation be defined?
Inflation can also be defined as the reduction in the purchasing power of the currency.
What are Administrative Prices?
When the government fixes the prices in the economy, it is referred to as Administrative Prices since it is administered by the government.
How can prices be regulated by market forces?
Prices can also be regulated by the market forces of demand and supply.
What does a downward sloping demand curve indicate?
The downward sloping demand curve shows that at lower prices, the individual is willing to buy more of commodity ‘x’, and at higher prices, he/she is willing to buy less of commodity ‘x’.
What is the relationship between the price of a commodity and the quantity demanded?
There is a negative relationship between the price of a commodity and the quantity demanded. This is referred to as the Law of Demand.
How is the quantity supplied related to the price of a commodity?
The quantity supplied and the price of the commodity are directly proportional. Therefore, the supply curve is a positive slope curve.
What does the equilibrium point represent?
The equilibrium point represents the balance between the quantity demanded and the quantity supplied in a market. It is the point where the market supply curve intersects the market demand curve.
What do ‘SS’ and ‘DD’ represent in the equilibrium point graph?
‘SS’ represents the market supply curve, and ‘DD’ represents the market demand curve for a commodity.
What factors can cause a shift in the Demand Curve (DD)?
Demand-side factors can cause a shift in the Demand Curve (DD). Any increase in the demand in the economy would lead to a rightward shift in the curve.
What factors can cause a shift in the Supply Curve (SS)?
Supply-side factors can cause a shift in the Supply Curve (SS). Any decrease in the supply of commodities due to reasons like bad monsoon, natural disasters, or increased wastage of resources would result in a leftward shift in the curve.
What are the two main factors behind inflation in a country?
The two main factors behind inflation in a country are demand-side factors and supply-side factors.
How does demand-side inflation occur?
Demand-side inflation occurs when the total demand in a country exceeds the total supply.
How can demand-side inflation be classified?
Demand-side inflation can be classified as a situation when there is too much money chasing just a few goods.
What are some examples of demand-side factors that contribute to inflation?
Examples of demand-side factors include an increase in population, an increase in money supply, an increase in black money, an increase in salary wages and pensions, an increase in government expenditure (especially revenue expenditure), and an increase in foreign exchange reserves.
What is supply-side inflation?
Supply-side inflation refers to a key factor contributing to rising prices in a country.
What are some examples of supply-side factors that contribute to inflation?
Examples of supply-side factors include erratic monsoon and production shortfalls, wastage and loss in transit, hoarding, black marketing, and import cost push factors.
In India, what is the nature of inflation in terms of the factors involved?
In India, inflation is a result of both supply-side and demand-side factors.
What is hyperinflation?
Hyperinflation is an extreme form of inflation where prices rise at an alarmingly high rate, typically exceeding 50% every month.
When does hyperinflation typically occur?
Hyperinflation usually occurs in extraordinary situations such as war, political turmoil, or internal disturbances in a country’s economy.
Can you provide examples of countries that have experienced hyperinflation?
Hungary experienced hyperinflation in 1946, Zimbabwe during 2004-2009, and Venezuela is currently going through an alarming rate of hyperinflation (around 130,000% in 2018).
What is the highest inflation rate ever experienced by India?
In 1974, India experienced a 34% inflation rate, which is the highest ever recorded in the country. Conversely, the lowest inflation rate was recorded in 1976 (-11%).
What is deflation?
Deflation refers to a general decline in the price level of goods and services, resulting in an increase in the purchasing power of the currency.
How does deflation differ from inflation?
While inflation signifies rising prices and a decrease in the value of money, deflation signifies falling prices and an increase in the value of money.
What is stagflation?
Stagflation is a situation where there is a coexistence of inflation and economic stagnation, particularly in certain sectors of the economy.
Who coined the term “stagflation”?
The term “stagflation” was first used in 1968 by Iain Macleod.
What are the key characteristics of stagflation?
Stagflation is characterized by a high rate of inflation, a slowdown in economic growth, and persistently high unemployment.
Why does stagflation pose a dilemma for economic policymakers?
Stagflation presents a challenge for policymakers because measures taken to reduce inflation may worsen unemployment, and actions to address unemployment may worsen inflation.
How is stagflation defined in terms of GDP growth?
Stagflation may technically be defined as an economic slowdown where the GDP growth rate turns negative for two consecutive quarters.
What is core inflation?
Core inflation refers to inflation that excludes the impact of factors beyond the government’s control, such as volatile food and energy prices.
Why is core inflation used as a measure?
Core inflation is used to gauge the underlying inflationary pressure in an economy by focusing on price changes in non-food and non-energy sectors.
Which factors are excluded from core inflation?
Core inflation excludes the prices of food and energy commodities, which are known to be more volatile and can distort the overall inflation rate.
What is headline inflation?
Headline inflation measures the total inflation in an economy, including the impact of all goods and services.
How is headline inflation different from core inflation?
Unlike core inflation, headline inflation includes the prices of all commodities, including volatile food and energy prices.
What are examples of headline inflation measures in India?
Examples of headline inflation measures in India include the Wholesale Price Index (WPI) and Consumer Price Index (CPI).
Why are food and energy prices included in headline inflation?
Food and energy prices are included in headline inflation because they can experience sudden price spikes, which can significantly impact the overall inflation rate.
