English PSSSB Practice 59

Inflation is the rise in the general level of prices of goods and services in an economy over a period of time. When inflation occurs, the purchasing power of money falls, meaning that the same amount of money buys fewer goods and services. Inflation is usually measured as a percentage, showing the rate at which prices increase annually. There are different causes of inflation, such as demand-pull inflation, cost-push inflation, and built-in inflation. Demand-pull inflation happens when demand for goods and services increases faster than supply, leading to higher prices. Cost-push inflation occurs when the cost of production increases, such as higher wages or rising prices of raw materials, and businesses pass these costs to consumers. Built-in inflation is related to adaptive expectations where workers demand higher wages, and businesses raise prices accordingly. Inflation affects the economy in both positive and negative ways. Moderate inflation can be beneficial, as it encourages spending and investment. However, high inflation, also called hyperinflation, can harm the economy by reducing savings, increasing the cost of living, and creating uncertainty. Inflation affects people differently: those with fixed incomes suffer the most, while borrowers may benefit because they repay loans with cheaper money. Governments and central banks try to control inflation using monetary policy and fiscal policy. The Reserve Bank of India (RBI) uses tools like repo rate, reverse repo rate, and cash reserve ratio to control money supply and inflation. Inflation is influenced by factors like money supply, demand, cost of production, government policies, and global conditions. Controlling inflation is important for economic stability and growth. High inflation reduces the purchasing power of citizens and may slow down economic development. Therefore, governments aim to keep inflation at a moderate level to ensure economic growth without harming people's livelihoods. Inflation is a critical economic indicator that affects everyone, from individuals to businesses and the entire economy.