Question

State the meaning of inflation in an economy. Why does this situation need to be corrected?

Hint:

Remember: Inflation reduces the value of money — keeping it under control keeps the economy stable.

Answer 1

Inflation refers to a continuous increase in the general price level of goods and services in an economy over a period of time.
When inflation occurs, the purchasing power of money decreases because people need to spend more to buy the same goods and services.
A moderate level of inflation is normal for economic growth, but high or uncontrolled inflation can harm the economy.
It is important to control inflation because rising prices reduce the value of savings and affect people’s standard of living, especially for those with fixed incomes.
High inflation creates uncertainty in the economy, discouraging investments and slowing down growth.
It may also lead to higher costs of borrowing, affecting businesses and consumers alike.
Therefore, governments and central banks take measures like adjusting interest rates and controlling money supply to keep inflation within acceptable limits.