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Ensuring price stability by monetary authorities is a necessary condition for the economy to sustain high growth. Analyse

Topic: Inclusive growth and issues arising from it.

5. Ensuring price stability by monetary authorities is a necessary condition for the economy to sustain high growth. Analyse (250 words)

Difficulty level: Easy

Reference: The Hindu

Why the question:

Key Demand of the question:

To understand the dynamics between Inflation and economic growth and the role of RBI in this.

Directive word: 

Analyse – When asked to analyse, you must examine methodically the structure or nature of the topic by separating it into component parts and present them in a summary.

Structure of the answer:

Introduction: 

Begin by stating the present slow recovery of economy from Covid pandemic along with the rising oil prices and the policy of fiscal stimulus through liquidating government assets.

Body:

Discuss the Phillips curve and the relation between unemployment(growth) and wages(inflation) and the need to balance the two. Stress on the fact that reasonable price stability determines various factors such as Investment climate of the country, borrowing trends of businesses, ensure reasonable supply inputs of industries and also cost of agricultural produce.

Conclusion:

Conclude by stating that the RBI has to walk a tightrope balance to ensure that the prices are maintained at a reasonable degree to ensure that the growth is sustained in the long run.