8.1 MEANING OF INFLATION
Inflation happens when there’s too much demand for things. It means prices keep going up, and your money doesn’t buy as much as before. According to Keynes, inflation occurs when there’s more money available compared to the things you can buy with it. Emile James describes inflation as a situation where prices keep going up because there’s more demand than the supply can handle.
Not all price increases are inflation. Inflation starts when prices go up by more than 3%. If prices rise by more than 10%, we call it two-digit inflation. So, inflation is when prices keep rising, making your money lose its buying power.
8.2 TYPES OF INFLATION
- 1.Creeping Inflation: This is like mild inflation, happening when prices go up by a maximum of 3% per year.
- 2.Galloping Inflation: When mild inflation isn’t controlled, it turns into galloping inflation. Prices increase rapidly, around 8% to 10% per year. This can affect savings, making it harder for people to invest in the future. It’s important to take effective steps to control and eliminate it.
- 3.Hyperinflation: This happens when prices go out of control. It was a big problem in Germany during the war years. Prices rose so fast that they became a million times higher than before the war. It was uncontrollable. Anything with a fixed value, like property or income, loses its value. People end up selling their property for less because of the high inflation. Authorities struggle to control hyperinflation.
- 4.Open Inflation: Prices go up without any government control. It happens when there’s high demand and not enough supply. There’s no check on the initial price rise, which then leads to further increases.
- 5.Suppressed Inflation: In this type, inflation builds up, but government intervention keeps it under control.
6.Stagflation: Stagflation is a mix of stagnation (a lack of growth) and inflation. It happens when prices keep going up, but people can’t find jobs, and producers can’t find customers for their products. India experienced stagflation during 1991-94
Objective Type Questions
1.What is Creeping Inflation characterized by?
a) Prices going down
b) Mild inflation, with prices increasing by a maximum of 3% per year
c) Hyperinflation
d) Prices remaining constant
Answer: b) Mild inflation, with prices increasing by a maximum of 3% per year
2.When does Galloping Inflation occur?
a) When prices decrease rapidly
b) When mild inflation is controlled effectively
c) When prices increase rapidly, around 8% to 10% per year
d) When there is no inflation
Answer: c) When prices increase rapidly, around 8% to 10% per year
3.What is the main characteristic of Hyperinflation?
a) Mild increase in prices
b) Prices going out of control, rising significantly
c) Stable prices over time
d) Fixed value of property
Answer: b) Prices going out of control, rising significantly
4.What defines Open Inflation?
a) Prices going up without any government control
b) Prices controlled by government intervention
c) Stagnation in the economy
d) Hyperinflation
Answer: a) Prices going up without any government control
5.Which period in India experienced Stagflation?
a) 2000-2005
b) 1985-1988
c) 1991-94
d) 2010-2015
Answer: c) 1991-94