Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
Due to inflation the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. In the situation the rising prices stimulate the production of all goods – both of consumption and of capital goods. As producers get more and more profit, they try to produce more and more by utilising all the available resources the their disposal. However, such favourable effects of inflation upon production are not always found. Sometimes, production may come to a standstill position despite rising prices, as was found in recent years in developing countries like India.
