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: -Devaluation is a decision that makes a currency lose value. Let’s look at the most common types of devaluation and what makes governments implement them. External devaluation. When a country’s production costs are high, its goods and services become more expensive abroad than its competitors’ and lose competitiveness.

Detailed explanation-5: -Inflation occurs when the prices of commodities rise beyond a certain degree. This occurs when a currency tends to lose its value. Consequently, there is a rise in prices. Over a period of time, an increase in the prices of commodities takes place because currency gets devalued.