The term 'inflation' refers to the increase in

The term ‘inflation’ refers to the increase in

[amp_mcq option1=”unemployment rate” option2=”prices of goods and services” option3=”foreign exchange reserves” option4=”interest rates” correct=”option2″]

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UPSC Combined Section Officer – 2019-20

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Inflation is defined as a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.

– It is about the increase in the *general* price level, not just a few items.
– It leads to a decrease in the purchasing power of money.
– It is typically measured as an annual percentage increase.

Inflation can be caused by various factors, including demand-pull (excess aggregate demand) and cost-push (increase in production costs). It is typically measured using price indexes like the Consumer Price Index (CPI) and Wholesale Price Index (WPI).

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