ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Demand-pull inflation As a result, demand for goods and services will increase relative to their supply, providing scope for firms to increase prices (and their margins – which is their mark-up on costs).

Detailed explanation-2: -The demand for goods remains unchanged while the supply of goods decreases due to the higher costs of production. The added costs of production result in higher prices for consumers.

Detailed explanation-3: -High inflation in a country means the cost of consumer goods is high; this points to less foreign customers (less foreign currency) and the country’s trade balance is disturbed. Lesser demand of the currency will ultimately lead to a fall in currency value.

Detailed explanation-4: -Inflation affects all aspects of the economy, from consumer spending, business investment and employment rates to government programs, tax policies, and interest rates. Understanding inflation is crucial to investing because inflation can reduce the value of investment returns.