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Kerala PSC Indian Economy Book Study Materials Page 169Book's First Page
n lation and siness le 7.5 The governments might utilise any of the jumping inflation and running or runaway above or all the three measures to check and inflation.15 manage inflation in their day to day price management policy. 3. hyPerinflAtion This form of inflation is ‘large and accelerating’16 types of InflatIon which might have the annual rates in million or Depending upon the range of increase, and its even trillion.17 In such inflation not only the range severity, inflation may be classified into three of increase is very large, but the increase takes broad categories. place in a very short span of time, prices shoot up overnight. 1. loW inflAtion The best example of hyperinflation that Such inflation is slow and on predictable11 lines, economists cite is of Germany after the First which might be called small or gradual12. This World War—in early 1920s. At the end of 1923, is a comparative term which puts it opposite to prices were 36 billion times higher than two years the faster, bigger and unpredictable inflations. earlier.18 This inflation was so severe that paper Low inflation takes place in a longer period and German currencies (the Deutsche Mark) were the range of increase is usually in ‘single digit’. more valuable as stove fuel than as actual money.19 Such inflation has also been called as ‘creeping Some recent examples of hyperinflation had been inflation’.13 We may take an example of the the Bolivian inflation of mid-1985 (24,000 per monthly inflation rate of a country for six months cent per annum) and the Yugoslavian inflation of being 2.3 per cent, 2.6 per cent, 2.7 per cent, 2.9 1993 (20 per cent per day).20 per cent, 3.1 per cent and 3.4 per cent. Here the range of change is of 1.1 per cent and over a period Such an inflation quickly leads to a complete of six months. loss of confidence in the domestic currency and people start opting for other forms of money, 2. gAlloPing inflAtion as for example physical assets, gold and foreign This is a ‘very high inflation’ running in the currency (also known as ‘inflation proof’ assets) range of double-digit or triple digit (i.e., 20 per and people might switch to barter exchange.21 cent, 100 per cent or 200 per cent in a year).14 15. As popularised by The Economist, The Wall Street In the decades of 1970s and 1980s, many Latin Journal, The Economic Times (India), etc. American countries such as Argentina, Chile and 16. Collins Dictionary of Economics, p. 251 Brazil had such rates of inflation—in the range 17. Samuelson and Nordhaus, Economics, p. 671. of 50 to 700 per cent. The Russian economy did 18. homas Sargent, he nds of our ig n ations , in R. Hall, io e ffec (as quoted by show such inflation after the disintegration of the Stiglitz and Walsh, Economics, p. 513). ex-USSR in the late 1980s. 19. Stiglitz & Walsh, Economics, p. 512. Contemporary journalism has given some 20. Sachs, Jeffery, The End of Poverty, Penguin Books, London, 2005, pp. 92–108 other names to this inflation—hopping inflation, 21. Hyperin ation erodes the value of money very fast and 11. Samuelson and Nordhaus, Economics, p. 671. that too at a very high scale. We may put it with an example, suppose the annual rate of in ation is per 12. Collins Dictionary of Economics, p. 251. cent, money loses half its value every year. It means 13. Ibid. that a note of Rs. 100 will have a value of just Rs. 3 14. Samuelson and Nordhaus, Economics, p. 671 after five years.