Informative Blog shared by Asst. Prof. Navdeep Kaur

INFLATION

Inflation is a sustained increase in the general price level of goods and services in an economy over time. This means that the purchasing power of the currency declines, as it takes more units of currency to buy the same amount of goods and services. Inflation can be caused by various factors, including an increase in the money supply, rising demand for goods and services, or a decrease in the supply of goods and services.

Inflation can have both positive and negative effects on an economy. On the positive side, moderate inflation can encourage investment and growth by increasing the profits of businesses, and can help to reduce the burden of debt for borrowers. On the negative side, high inflation can erode the value of savings and income, causing a decline in living standards and potentially leading to social unrest.

Central banks typically aim to maintain low and stable inflation through monetary policy, such as adjusting interest rates or controlling the money supply. In some cases, governments may also implement fiscal policies, such as increasing taxes or reducing spending, to address inflationary pressures.

It is important for individuals and businesses to be aware of inflation and its potential impacts on their financial well-being. This can include strategies such as investing in assets that appreciate in value over time, diversifying investments, and seeking out inflation-protected assets like inflation-indexed bonds.