ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Friedman-Ball hypothesis states that an increase in inflation will lead to more uncertainty about inflation. The Cukierman and Meltzer hypothesis states that when uncertainty about inflation increases, it causes high rates of inflation.

Detailed explanation-2: -By using two different methodologies the Granger causality test and GARCH model Nas and Perry (2000) examine the relation between inflation and inflation uncertainty, and their empirical findings support the evidence, that the increasing in inflation rates causes increases inflation uncertainty.

Detailed explanation-3: -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-4: -During times of high inflation, companies pay more for input materials, shipping and other resources as overall costs increase. Brands might be forced to increase prices during inflationary periods to protect profit margins and keep investing in their people, services, marketing and product innovations.