B.Com Ist Year Inflation Long Short Question Answer Notes

B.Com Ist Year Inflation Long Short Question Answer Notes :- Study material Unit-wise chapter wise syllabus notes this post shows the complete details regarding the Inflation Business Environment Topic Wise chapter wise all the content Question Answer Notes Model Paper Examination Paper Sample Practice Paper PDF Download Hindi & English For Free.


0.16. Define inflation. what are its impacte en dierent sections of the society? How can it be controlled

(Meerut 2013)

Or Explain different forms of inflation and also discuss

its effects.

Ans.                  MEANING OF INFLATION NOTES

When demand of goods and services exceeds their supplies and it cannot be satisfied even by imports, it leads to rise in prices. The rise of prices of goods and services in economic term is known as inflation. In other words, inflation is a stage which pushes up the price level and pushes down the value of money. For Example, before independence one kg. pure ghee can be bought for Rs. one while in present days price of one kg. pure ghee is Rs. 420. This is the situation of inflation as prices of ghee is increased and value of money is decreased.

According to Prof. Crowther, “Inflation is a state in which the value of money is falling i.e., prices are rising.”

According to Prof. Pigou, “Inflation exists when money income is expanding more than in proportion to income earning activities.”

Thus, all the above definitions state that inflation is that condition where the total money supply is more than its demand and as a result of this, the value of money starts decreasing and the normal price level begin to rise.


Some of the main types of inflation can be discussed as follows:

(1) Currency Inflation : Inflation caused due to the excess. supply of money in relation to the available output of goods and services is known as currency inflation. This type of inflation occurs generally when Central Bank issued excess paper currency. It affects the prices of goods directly.

(2) Credit Inflation : When commercial banks of a country provide credit rapidly then it will increase the demand for goods and services and lead to increase in the price level. This type of inflation is known as credit inflation. Such type of inflation originates when government encourages an expansion of credit.

(3) Cost-Push Inflation: The cost-push inflation is caused by an increase in production costs. It is generally caused by two factores (a) an increase in wages, and (b) an increase in the profit-margins the entrepreneurs. When cost inflation arises in one particular industry, it soon spreads to the other factors of economy as well. th. reason being that the various sectors of the economy are closel. linked with each other.

(4) Demand-Pull Inflation : Demand-pull inflation is caused by an increase in the aggregate effective demand for goods and services in the economy. The effective demand increases due to increased money incomes of the factors of production. The demand inflation can be tackled by the government by curtailing unnecessary demand through the adoption of monetary and fiscal measures.

(5) Full and Partial Inflation : Rise in the price-level before the full employment level is known as partial inflation because an expansion of money supply before the point of full employment will lead to increase output and employment, not price level. The price level will increase only if the expansion of money supply is continued even beyond the point of full employment. Thus, the rise in the price level after the point of full employment is known as full inflation.

(6) Deficit Induced Inflation: When deficit in the budget of the government is fulfilled by resorting to the printing new current, then it led to increase in price level. This type of inflation is termed as deficit induced inflation.

(7) Devaluation Induced Inflation : Develuation of money promote exports of the country. Due to increase in exports, supply of goods in the country get reduced and thus the price-level rises. This condition is known as devaluation induced inflation.

(8) Open and Suppressed Inflation: When government does not attempt to check inflation and it becomes out of control, it is known as open inflation. But when government took special measures to check the rising trend in price level by price control and rationing, it is termed as suppressed inflation.

(9) Production Induced Inflation : When the price-level rises due to decrease in production, it is termed as production inducedinflation.


(1) Effeets on Producers and Businessmen : Inflation has favourable effect on producers and businessmen. It is a boon for enterpreneurs as they experience wind-fall gains as the prices of their stock suddenly go up. This would lead to optimism among the businessmen to invest more and get more profit. This increase the output and employment in the economy. During inflation, the monetary income of public rises and consequently the demand rises but the amount of production still remains low and goods are sold at higher prices. Thus, producers get more profits. But a state of hyper-inflation creates a lot of uncertainty in the economy which is harmful to production.

(2) Effects on Wage and Salary Earners: Wages do not rise as much as the rise in prices during the inflation. Wage earners suffer during the inflation. Wage rise lags behind the price rise. Trade unions bargain for higher wages for the workers whereas the salaried people are not organised hence they suffer much during inflation. The wage rise is not corresponding to a rise in the prices.

(3) Effect on Consumers : Every individual in the society is consumer. Fixed income group consumers are the worst sufferers during inflation because their purchasing power goes down with the increase in price level in the economy. Consumers, whose income increase during inflation are not effected because of increase in price level.

(4) Effects on Distribution: In a inflationary situation prices of all factors do not rise in the same proportion. Businessmen gain more profits than the fixed income groups. Blackmarketeers and traders gain windfall profits. Changes in the value of money or price rise result in the redistribution of wealth. As a result of inflation the redistribution of wealth puts more burden on groups which are unable to bear it.

(5) Effects on Investors: Investors are generally of two types : (a) Investors in equities (shares), and (b) Investors in fixed interest-yielding bonds and debentures. Inflation bestows favours on the former and is rather harsh on the latter. Dividends on equities increase with increase in prices and corporate earnings, and as such the investors in equities are favourably affected. Income from bonds and debentures, however, remains fixed and as such investors in them are adversely affected.

(6) Effects on Debtors and Creditors : During inflation, debtors are generally the gainers while the creditors are the losers. The debtors while repaying the debts return less purchasing power to the creditors than what they had actually borrowed. Since the creditors receive less in real terms, they are the losers during inflation.


(7) Bad Effects on Savings. Since hyper-inflation results in serious depreciation of the value of money, it discourages savings the part of the public. With reduced savings, the process of capital accumulation suffers a serious setback.

(8) Reduction of Faith in Money: Due to inflation, values money decreases which consequently reduces the faith of public in money. Consumers starts hoarding of essential goods rather than money.

(9) Development of Banking : Inflationary situation give rise to the development of trade and industrial activities. This in creases the demand of money and credit and also develops banking and insurance activities.

(10) Increase in Employment Opportunities : More and more employment opportunities are generated during inflation be cause the producers expand the size of business and trade in exper. tation of huge profits. Thus, slight inflation is best for employment avenues.

(11) Break Down of Public Moral : During inflation there becomes great break down of public morals. It gives stimulus to speculative activity on account of the uncertainty generated by a continually rising price-level. Producers make serious deterioration in the quality of products and follow other anti-social tactice to boost up there profits. Corruption, Adulteration and hoarding of goods pollutes the social environment.

Q.17. Discuss the main causes of inflation in India. What steps have been taken by the government to check it?


Explain the factors which have contributed to price rise in India. Suggest relevant measures to control rising prices.


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