ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.

Detailed explanation-2: -Inflation leads to costlier goods and services in the international market. Export of goods and services will increase only if demand for domestic export in foreign countries is inelastic (Fleming, 1962; Mundell, 1963). So, inflation affects export primarily through their influence on exchange rate.

Detailed explanation-3: -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-4: -During inflation, businessmen and entrepreneurs experience an increase in profits. On the other hand, people belonging to the fixed-income groups experience a decline in their real income.