ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Since the prices of raw materials and factors of production increase, the prices of export items also increase during inflation. Hence, their demand in the foreign markets might fall which leads to a fall in the export income of the country.

Detailed explanation-2: -Inflation is measured by the consumer price index (CPI), and at low rates, it keeps the economy healthy. But when the rate of inflation rises rapidly, it can result in lower purchasing power, higher interest rates, slower economic growth and other negative economic effects.

Detailed explanation-3: -Persistently high inflation erodes the real value of investment capital, requiring a higher nominal return to maintain purchasing power. It also introduces distortions that may affect real economic outcomes, including policy implementation and planning by households and businesses.