Page 173 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes in that they raise the profit margins of firms and encourage them to produce more. Creeping
inflation does not severely distort relative prices nor does it destabilise price expectations.
A single digit inflation is also considered as moderate inflation which most countries have come
to put up with.
In galloping inflation prices rise at double or treble digit rates per annum (20-100%). It tends to
distort relative prices and results in disquieting changes in distribution of purchasing power of
different groups of income earners. There is often a flight of capital from the country since
people tend to send their investment funds abroad and domestic investment withers away.
Hyper inflation or run-away inflation is of a severe type in which prices rise a thousand or a
million or even a billion per cent per year. It seriously cripples the economy. Prices and money
supply rise alarmingly.

Did u know? Germany experienced hyper inflation during 1920-23. It is generally a result
of war, political revolution or some other catastrophic event.

Task Record the inflation rates in India for a particular month. Notice the changes
happening in the rates. Try to find out the reasons behind those changes.

Self Assessment

Multiple Choice Questions:
1. Inflation can be defined as a ................................. in prices.
(a) Continuous fall (b) Steep fall

(c) Sustained rise (d) Unstable rise
2. A situation where there is a decline in the rate of inflation is called ___________
(a) Creeping inflation (b) Galloping inflation

(c) No inflation (d) Disinflation
3. .......................... inflation occurs when, prices go up freely due to supply-demand imbalances
in a free market economy.

(a) Open (b) Suppressed
(c) Creeping (d) Galloping
4. ............................. is usually considered good for a growing economy.
(a) Open (b) Creeping
(c) Galloping (d) Hyper

5. Inflation situation in Zimbabwe represents a .................................
(a) Disinflation (b) Creeping
(c) Galloping (d) Hyperinflation

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