What is inflation, deflation, and stagflation?

The general rise in prices of goods and services is known as inflation. Moderate inflation is healthy for economic growth, but high inflation is not good for the economy. Deflation occurs when there is a huge decrease in prices of goods and services. You can read about the Inflation in Economy- Types of Inflation, Inflation Remedies [UPSC Notes] in the given link.

Deflation is very bad for the economy because it will negatively impact the investments and production and thereby increase unemployment. When there is inflation but the economic growth is slow or stagnant and has a very high unemployment rate, then this is known as stagflation. Economists try to avoid both stagflation and deflation.

Further readings:

  1. RBI – Know About Reserve Bank of India, Functions, Composition
  2. Monetary Policy Committee (MPC) – An Overview, Instruments of Monetary Policy

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