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What is Inflation? Moderate inflation is a normal aspect of a growing economy, but when inflation is too high or too low, it can have serious economic consequences. Examine.

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

4.  What is Inflation? Moderate inflation is a normal aspect of a growing economy, but when inflation is too high or too low, it can have serious economic consequences. Examine. (250 words)

Difficulty level: Easy

Reference: Live MintInsights on India

Why the question:

Elevated prices that are no longer rising fast are often seen as ‘inflation’. The US shouldn’t need to argue about standard economic metrics. Maybe it’s time to talk of the non-economic reasons for gloom in the US.

Key Demand of the question:

To write about inflation, its impact and measures needed to keep it under control.

Directive word:

Examine – When asked to ‘Examine’, we must investigate the topic (content words) in detail, inspect it, investigate it and establish the key facts and issues related to the topic in question. While doing so we should explain why these facts and issues are important and their implications.

Structure of the answer:

Introduction: 

Begin by defining inflation.

Body:

First, write about the impact of moderate and high inflation on various macroeconomic parameters – purchasing power, growth, cost of living, availability of credit and exchange rates etc.

Next, write about the measures that are taken to keep inflation under tolerable limits – the monetary policy measures, fiscal policy measures and price control measures.

Conclusion:

Conclude by writing a way forward.