ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -According to Quantity Theory: Inflation is caused when the rate of increase in the money supply is faster for example printing more notes than the growth of real output. Because there is more money pursuing the same quantity of commodities, this is the case.

Detailed explanation-2: -On the other hand, if there is more money in circulation but the same level of demand for goods, the value of the money will drop. This is inflation-when it takes more money to get the same amount of goods and services (see “Inflation: Prices on the Rise”).

Detailed explanation-3: -Long-lasting episodes of high inflation are often the result of lax monetary policy. If the money supply grows too big relative to the size of an economy, the unit value of the currency diminishes; in other words, its purchasing power falls and prices rise.

Detailed explanation-4: -Inflation increases the price of goods and services over time, effectively decreasing the number of goods and services you can buy with a dollar in the future as opposed to a dollar today.

Detailed explanation-5: -If the government prints too much money, people who sell things for money raise the prices for their goods, services and labor. This lowers the purchasing power and value of the money being printed. In fact, if the government prints too much money, the money becomes worthless.