ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Most economists now believe that low, stable, and-most important-predictable inflation is good for an economy. If inflation is low and predictable, it is easier to capture it in price-adjustment contracts and interest rates, reducing its distortionary impact.

Detailed explanation-2: -As an economy grows, businesses and consumers spend more money on goods and services. In the growth stage of an economic cycle, demand typically outstrips the supply of goods, and producers can raise their prices. As a result, the rate of inflation increases.

Detailed explanation-3: -Economists have an awful record at forecasting inflation, interest rates, gross domestic product, and other macro variables. Below I excerpt from a Wall Street Journal column summarizing the failed record of forecasting 2022’s inflation, interest rates, and stock market.

Detailed explanation-4: -expansion. What do economists mean when they refer to inflation as “general increase in the prices of goods and services.” Some prices are rising, some prices are falling, and some prices are constant, but on average, prices are increasing.