ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Unexpected inflation leads to high-risk premiums and economic uncertainty. With higher uncertainty, lenders ask for a premium to compensate for the uncertainty. This leads to higher costs of borrowing, hence reducing economic activity because it discourages investments.

Detailed explanation-2: -Creeping Inflation: This is also known as mild inflation or moderate inflation. This type of inflation occurs when the price level persistently rises over a period of time at a mild rate.

Detailed explanation-3: -Inflation is sometimes classified into three types: demand-pull inflation, cost-push inflation, and built-in inflation.

Detailed explanation-4: -Unanticipated inflation can therefore cause allocative inefficiency. Redistribution-inflation creates an arbitrary redistribution of income, and is unfair. People who have borrowed money will be better off as they have less to pay back in real terms.