Inflation — Flashcards

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Inflation is a persistent, fast-paced rise in prices of goods and services over a long period. It is a rise in prices, not simply a state of high prices or a one-time increase.

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A one-time rise, or a rise for a short period such as 6 months or a year, does not count as inflation. Inflation means prices keep rising continuously over a long period.

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The main features are: prices rise, prices rise continuously over a long period, prices rise at a faster rate, and prices do not rise equally for all goods and services.

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Value of money means the purchasing power or buying capacity of money. It shows how many goods and services a unit of money can buy. For example, if prices fall, the same money can buy more goods, so …

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There is an inverse relationship between value of money and price level. When prices rise, the value of money falls. When prices fall, the value of money rises.

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The formula is Vm = 1/P, where Vm stands for value of money and P stands for price level. This shows that higher prices reduce the value of money.

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Wholesale Price Index is an index number representing the average change in wholesale prices of commodities. It indicates the change in the general price level in the economy and is constructed weekly…

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WPI is considered the appropriate indicator of general inflation in India. It helps show how wholesale prices are moving in the economy.