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Understanding Inflation's Economic Impact

Inflation is the general increase in prices that diminishes money's purchasing power, influenced by factors such as demand, production costs, and government policies. It can have both positive effects, like encouraging spending, and negative effects, such as reducing savings value. Controlling inflation involves monetary and fiscal policies, as well as supply-side measures to enhance production.

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17 views1 page

Understanding Inflation's Economic Impact

Inflation is the general increase in prices that diminishes money's purchasing power, influenced by factors such as demand, production costs, and government policies. It can have both positive effects, like encouraging spending, and negative effects, such as reducing savings value. Controlling inflation involves monetary and fiscal policies, as well as supply-side measures to enhance production.

Uploaded by

jyotishmitagoswami199
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Inflation and Its Impact on the Economy

Inflation refers to the general rise in prices of goods and services over time, reducing the purchasing

power of money.

Types of Inflation:

1. Demand-Pull Inflation - Caused by increased demand exceeding supply.

2. Cost-Push Inflation - Due to rising production costs.

3. Built-In Inflation - When wages rise, causing higher prices.

Causes of Inflation:

- Excess demand in the economy.

- Increase in production costs (e.g., raw materials, wages).

- Government policies (e.g., excessive money printing).

Effects of Inflation:

- Positive: Encourages spending and investment.

- Negative: Reduces the value of savings and increases living costs.

Controlling Inflation:

- Monetary policies (interest rate adjustments).

- Fiscal policies (taxation, government spending).

- Supply-side measures (boosting production).

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