Inflation — Flashcards

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Inflation is a general, persistent, and substantial rise in the price level over a long period of time. As prices rise, the purchasing power of money falls, so each rupee buys fewer goods and services…

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Inflation means rising prices, not just already high prices. A one-time rise or a short rise lasting about 6 months to a year is not inflation. The rise must be continuous and substantial over a long …

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The purchasing power of money decreases during inflation. This means the same amount of money buys fewer goods and services than before.

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Value of money means the purchasing power or buying capacity of money. It shows how many goods and services one unit of money can buy.

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They have an inverse relationship. When the price level rises, the value of money falls. When the price level falls, the value of money rises.

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Value of Money: V_m = 1/P, where V_m = value of money and P = price level.

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The value of money increases. At ₹10 per kg, one rupee buys 100 grams of wheat. At ₹8 per kg, one rupee buys 125 grams of wheat.

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Rate of inflation refers to the rate at which inflation is increasing over a specific period. It shows how fast prices are rising in a given time.