Civil Services Preliminary
It is one of the most important macroeconomic events that has created a
lot of embarrassment not only among the public but also for the union government
and RBI. It refers to the persistent rise in the general price level, i.e., in
the price of goods and services.
It reduces the purchasing power of money and ultimately hurt the economy
in many way:
1. Reduces savings or create a situation like forced saving.
2. A greater portion of income goes to fulfill basic requirements.
3. Interest rates increase.
4. Dampens investment
5. Domestic currency get depreciated and imports become costlier which again
pushes up input cost and creating various circle like situation.
Causes of Inflation
Though causes of inflation aremulti-dimensional but broadly it could be
expressed in tow forms:
It means that inflation is caused either due to increase in demand, because when
demand will be high princes, will certainly go up and increase in the cost of
production, or due to both.