Page 98 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy Hitesh Jhanji, Lovely Prpofessional University

Notes
Unit 9: Inflation: Nature and Extent

CONTENTS
Objective
Introduction
9.1 Inflation: Nature and Extent
9.2 Methods of Measuring Inflation
9.3 Types of Inflation
9.4 Inflation, Disinflation and Deflation
9.5 Inflation in India : A Long-Term View
9.6 Economic Effects of Inflation
9.7 Summary
9.8 Key-Words
9.9 Review Questions
9.10 Further Readings

Objectives

After reading this Unit students will be able to:
• Understand Inflation.
• Discuss the Nature and Extent of Inflation.
• Explain the Types of Inflation.
Introduction

The problem of inflation is as old as market system. But, a persistent, continuous and high rate of
inflation—generally, 5% or more—has emerged during the post-War II period as the most intractable
economic problem for both theoreticians and policy-makers all over the world. The problem of inflation
has received a more serious attention since the early 1970s. A continuous rise in the general price level
over a long period of time has been the most common feature of both developed and developing
economies. For example, the US is currently facing the problem of rate of inflation (around 5 percent)
even though the US economy is facing recession. India, a fast developing nation—growing at the rate of
9% per annum was facing a high rate of inflation—over 12% in the 2nd half of 2008 which had created
economic, social and also political problems of the country. Persistent inflation is perhaps the second
most serious macroeconomic problem confronting the world economy today—second only to hunger
and poverty in the ‘third world.’ Some authors consider inflation as the ‘dominant economic problem’
in modern times. The persistent inflation and the problems associated with inflation have claimed
more attention of the economists, policy makers and politicians than any other macroeconomic problem.
This has led to abounding increase in the literature on inflation. In this introductory Chapter, we discuss
three main aspects of inflation—meaning, measurement and effects of inflation. The theories of inflation
and the relationship between inflation and unemployment are discussed in two subsequent chapters.
9.1 Inflation: Nature and Extent

In a broad sense of the term, inflation means a considerable and persistent rise in the general price
level over a period of time. However, there is no universally acceptable definition of inflation. The
definition of inflation has been, in fact, a matter of opinion on price rise and its causes. Let us look at
some widely quoted early definitions of inflation and their implications.

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