2.  Inflation is defined as a sustained increase in the
general level of prices for goods and services.
 It is measured as an annual percentage increase.
 As inflation rises, every rupee you own buys a
smaller percentage of a good or service

3.  Deflation is when the general level of prices is falling. This is
the opposite of inflation.
 Hyperinflation is unusually rapid inflation. In extreme cases,
this can lead to the breakdown of a nation's monetary
system.
 Stagflation is the combination of high unemployment and
economic stagnation with inflation

4. 1) Demand-Pull Inflation - This theory can be summarized
as "too much money chasing too few goods". In other
words, if demand is growing faster than supply, prices
will increase.
2) Cost-Push Inflation - When companies' costs go up,
they need to increase prices to maintain their profit
margins. Increased costs can include things such as
wages, taxes, or increased costs of imports

5.  Anticipated inflation
If the inflation rate corresponds to what the majority
of people are expecting
 Unanticipatedinflation:
Uncertainty about what will happen next makes
corporations and consumers less likely to spend.

6.  A number of goods that are representative of
the economy are put together into what is
referred to as a "market basket.“
 The cost of this basket is then compared over
time.
PRICE INDEX FORMULA
Inflation rate = PREVIOUS YEAR P.I – CURRENT YEAR P.I /
PREVIOUS YEAR P.I

7. Price indexes that measure inflation:
Consumer Price Index (CPI) - A measure of price changes in consumer goods
and services such as gasoline, food, clothing and automobiles.
The CPI measures price change from the perspective of the purchaser.
FORMULA :
CPI IN YEAR ‘ n ‘ = (cost of basket in year ‘ n ‘/ cost of basket on base year )*
100
Producer Price Indexes (PPI) - A family of indexes that measure the average
change over time in selling prices by domestic producers of goods and services.
PPIs measure price change from the perspective of the seller.
FORMULA :
Approx. No. Of yrs required to double the price = 70 / % annual inflation rate

9.  The budget that deals with how a Government raises its
revenue and spends it
 The budget of the Government has two parts, revenue
budget and capital budget.
MONETARY POLICY
 Adoption of suitable policy regarding interest rate and
credit availability
 It is another source for reducing aggregate demand to
control inflation
 The monetary theory emphasis that it is the changes in
the credit availability rather than cost of credit that is a
more effective instrument of regulating aggregate
demand.

10.  To correct the excess demand relative to aggregate
supply, the latter can also be raised by importing goods
in short supply
 At times of inflationary expectations, there is a
tendency on the part of businessmen to hoard goods.

11.  If productive capacity in the economy is not fully
utilized, then excess demand can also be reduced by
adopting measures for fully using the idle productive
capacities in various industries of the economy.
 This would augment the aggregate supply of output and
reduce the gap between the aggregate demand and
output.

12.  Impact on Household Sector: Inflation directly reduces
the purchasing power of the household sector.
 Impact on Business Sector: Firms benefit from rising
prices. Soon, demand falls as consumers reduce
consumption. Fall different for different commodities
depending on the price elasticity of demand.
 Impact on Govt: expense goes up with increase in price
level-austerity measures. Induction of more currency (to
cut-deficit) may worsen inflatory pressures

13.  The Key roles of the RBI are:
I. Regulator and supervisor of the financial system
II. Manager of exchange control
III. Issuer of currency
IV. Banker to the Government
V. Bank to banks: maintains banking accounts of all
scheduled banks

14.  Liquidity Adjustment Facility
 Liquidity Adjustment Facility is a kind of policy that
allows banks to borrow money through repurchase
agreements.
 Cash Reverse Ratio
 CRR means Cash Reserve Ratio. Banks in India are
required to hold a certain proportion of their deposits in the
form of cash. However, actually Banks don’t hold these as
cash with themselves, but deposit such case with Reserve
Bank of India (RBI) / currency chests, which is considered
as equivalent to holding cash with RBI.