ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Inflation lowers the value of the purchasing power of a currency, having the effect of a price rise. In the traditional economic sense, you would compare the price of a good or service against a price index, such as the Consumer Price Index (CPI) to measure the purchasing power.

Detailed explanation-2: -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-3: -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-4: -As our national debt increases, taxes must be raised or more money printed. In either case, the value of the U.S. dollar decreases accordingly.

Detailed explanation-5: -Deflation, or negative inflation, happens when prices generally fall in an economy. This can be because the supply of goods is higher than the demand for those goods, but can also have to do with the buying power of money becoming greater.