Economic growth is usually coupled with?
[UPSC Civil Services Exam – 2011 Prelims]
(a) Deflation
(b) Inflation
(c) Stagflation
(d) Hyperinflation
Answer: (b)
Explanation:
Deflation
- Occurs when asset and consumer prices fall over time.
- Negative inflation rate.
- Often used to express a declining economy.
- Real interest rates become too high.
- Increases the burden of debt and reduces the disposable income of indebted people.
Inflation
- It refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing etc.
- A certain level of inflation is required in the economy to ensure that expenditure is promoted and hoarding money through savings is demotivated.
- As the spending increases, the demand also increases which leads to inflation.
- Hence, Economic growth is usually coupled with inflation.
Stagflation
- It is an economic event in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.
- It can also be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).
Hyperinflation
- It is a term to describe rapid, excessive, and out-of-control general price increases in an economy.
- It has two main causes: an increase in the money supply and demand-pull inflation.
- It can occur in times of war and economic turmoil in the underlying production economy, in conjunction with a central bank printing an excessive amount of money.
