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Question
'A state of running or hyperinflation in any economy is very harmful for production'. Justify the statement with two reasons.
Solution
When the overall price level of the commodity basket rises extremely quickly, it is referred to as hyperinflation in an economy. In an economy, an inflationary or hyperinflationary state is extremely harmful to production due to:
- Reduction in saving: A hyperinflationary environment is bad for savings. A sharp price increase means that more money is needed to purchase the same products and services as previously. As a result, savings and investing have decreased.
- Misallocation of resources: The price mechanism's ability to function smoothly is disrupted by hyperinflation. It causes output to be maladjusted, which forces producers to shift their focus from producing necessities to non-essentials in the hopes of making more money.
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RELATED QUESTIONS
What is walking inflation?
What is the meaning of creeping inflation?
Study the relationship in the first pair of words and complete the second pair.
- Creeping inflation: The rate of inflation is 1% to 2% per annum.
- Running inflation: The rate of inflation is ______ per annum.
______ refers to a situation where prices rises very slowly.
______ inflation occurs when prices rise at a very fast rate from more than 20% to 100 percent or more per annum.
______ is beneficial for growth.
Match the following and select the correct option:
| Column A | Column B | ||
| (i) | Inflation caused by demand pull factors | A. | Hyper inflation |
| (ii) | Inflation caused by cost push factors | B. | Creeping inflation |
| (iii) | First stage of inflation | C. | Cost push inflation inflation |
| (iv) | Last stage of inflation | D. | Demand pull inflation |
What is meant by running inflation?
Explain creeping inflation impact on the economy?
When the general price level increases by 10% to 20% per annum, then it will be called:
