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The challenge of policymakers is to delicately balance the Inflation rate such that it is neither too high nor too low for a steady economy with optimum growth while creating demand. Analyse.

Topic: Inclusive growth and issues arising from it.

4. The challenge of policymakers is to delicately balance the Inflation rate such that it is neither too high nor too low for a steady economy with optimum growth while creating demand. Analyse. (250 words)

Difficulty level: Moderate

Reference: The Hindu

Why the question:

The latest data on inflation, both in retail and wholesale prices as well as industrial output estimates, suggest it would be prudent to adopt caution on the outlook for the economy.

Key Demand of the question:

To understand the implications of inflation on the economy and its ideal range.

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 giving a brief of what is inflation and how it is measured.

Body:

Write about the impact of inflation on growth and recession first and also on the employment generation and its impact of value of dollar and purchasing power parity.

Next, write about how high rate of inflation may have high demand but its has negative impact of unemployment, incomes, wealth etc.

Next, mention the need for a low and steady inflation rate supported by a low rate of borrowing that would promote employment generation and further boost the economy.

Conclusion:

Conclude by stating that policy measures must be restrictive or expansionary based on the inflation rates to bring it back to an ideal range for the benefit of the economy.