Page 110 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes 2. Moderate inflation : It can be differently defined around the world, given the different
inflation histories. As an indication only, one could consider an
inflation as moderate when it ranges from 5% to 25-30%. For some
countries, the higher part of this range is already "high inflation".
3. Low inflation : It can be characterized from 1-2% to 5%. Around zero there is no
inflation (price stability). Below zero, a country faces deflation.
4. Hyperinflation : It is the most extreme inflation phenomenon, with yearly price
increases of three-digits percentage points and an explosive
acceleration.
5. Extremely high inflation : It could range anywhere between 50% and 100%. High inflation is a
situation of price increase of, say, 30%-50% a year. Both kinds can be
stable or dangerously accelerate to enter in an hyperinflation condition.
6. Deflation : In economics, deflation is a decrease in the general price level of goods
and services. Deflation occurs when the inflation rate falls below 0%
(a negative inflation rate). This should not be confused with
disinflation, a slow-down in the inflation rate (i.e. when inflation
declines to lower levels). Inflation reduces the real value of money
over time; conversely, deflation increases the real value of money -
the currency of a national or regional economy. This allows one to
buy more goods with the same amount of money over time.
9.9 Review Questions

1. Define inflation. Can any price rise be called inflation ? What is the acceptable or desirable limit
of inflation ?
2. How is inflation measured ? Explain the methods of measuring inflation with examples.
3. What is meant by national income deflator ? How is national income deflator used to measure
inflation ?
4. Why is a moderate rate of inflation considered to be desirable for the economy ? What are the
limits of desirable rate of inflation for the developed and developing nations ?
5. What are the types of inflation ? How do they differ from one another ?
6. What is meant by inflation tax ? Under what conditions is inflation tax used as a source of
financing growth ?
7. How does inflation affect economic growth ? How can inflation be used to make the economy grow?
8. Explain the relationship between inflation and employment. Is achieving a high rate of
employment by means of inflation always desirable ?
Answers: Self-Assessment
1. (i)(c) (ii)(b) (iii)(d)
(iv)(a) (v)(e) (vi)(b)
(vii)(b)
9.10 Further Readings

1. The Indian Economy; S.K. Ray; Prentic, Hall of India Private Limited
New Delhi - 110001.
2. Indian Economy; Gaurav Datt and Aswani Mahajan; S. Chand and Company
LTD. Ram Nagar, New Delhi-110055.

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