ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What Is Inflation? Inflation is a rise in prices, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time.

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 makes your money worth less, so you’ll have to spend more for the same goods and services. In short, when inflation increases, your purchasing power decreases.

Detailed explanation-4: -Inflation erodes the purchasing power of money, and when the price level rises, the same amount of money buys less than it did before. Individuals with funds saved are losing purchasing power if the interest they receive on their savings fails to keep pace with the rate of inflation.

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.