What is Inflation is

Question

Inflation is
1. one time price level rise.
2. increasing profits in production.
3. increase in deficit financing.
4. continuous increase in price level.

Answer 1

Correct Answer - Option 4 : continuous increase in price level.

The correct answer is a continuous increase in the price level.

• The sustained rise in the prices over a period of time is known as Inflation.
• Types of inflation based on the cause-
  • Demand-pull Inflation- When demand is greater than supply.
  • Cost-push Inflation- It is caused when there is a reduction in aggregate supply, this may be because of increased prices of inputs.
  • Structural Inflation-  It is caused due to operation of the structural weaknesses.
    • ​supply bottleneck, lack of infrastructure etc.
• Types of inflation based on the rate of inflation-
  • Creeping Inflation- When the inflation rate is between 1% - 5%.
    • ​Manageable and inevitable in a growing economy.
  • Trotting Inflation -  When the inflation rate is between 5% - 10%.
    • ​If not controlled then may worsen into runaway inflation.
  • Hyper Inflation-  When the inflation rate exceeds 50% for a month.
    • Very high within a very short span of time.
• The WPI is widely used to measure the rate of inflation.