MONEY AND INFLATION — Economics STD 12 Commerce — Question

• During inflation there occurs constant rise in price levels.
• Price rise takes place in all sectors of the economy.
• Value of money i.e. purchasing power of money keeps on decreasing.
• The rise in price level after ‘full employment’ is also inflation.

To understand inflation properly it is important to consider some other points too. They are as follows:

1. If the government has controlled the prices either by suppressing prices through some rules, or by providing subsidies and therefore not allowing the price to rise then it is called ‘Suppressed Inflation’. The inflation exists because if the government removes its control or subsidies then the prices would rise.
2. If in an economy there is an increase in the price of few goods or services for a temporary period then it is not considered inflation.
3. When the resources present in an economy are lying unused then rise in prices of goods or services will enable the utilizing these resources in some manner. This will then reduce production costs.

Conclusion:
We can conclude that the increase in price levels after ‘full unemployment’ is considered inflation. Such an inflation poses restriction in economic development.
Causes of Inflation