IGCSE Economics Paper-2: Specimen Questions with Answers 3 - 4 of 100

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Passage

Inflation has dire economic consequences. Inflation is regarded as a serious social and economic problem.

Question 3 (3 of 5 Based on Passage)

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Short Answer▾

What is inflation?

Explanation

  • Inflation is defined as “A state in which the value of money is falling.” Inflation is commonly understood as situation of substantial and rapid general increase in the level of prices and consequent deterioration in the value of money over period.
  • Price indices are used to measure the behavior of general price. The trends of price reveal the course of inflation or deflation in the economy. According to Lerner, “a price rise which is unforeseen and uncorrected is inflationary”
  • Thus, inflation is statically measured in terms of percentage increase in the price index as rate per unit of time- usually a year or a month. The common feature of inflation is a price rise, the degree of which may measure by price indices.

Question 4 (4 of 5 Based on Passage)

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Short Answer▾

Distinguish between demand pull and cost – push inflation.

Explanation

Demand Pull Inflation and Cost-Push Inflation
S. No.Demand pull inflationCost-push inflation
1.The price level rise because of excess demand conditions in the marketThe price level rise because of increasing cost of production
2.Rise in population, rise in income etc. are demand-pull factors.Rise in prices of factors of production such as fuel price, wage cost, etc. are the cost push inflation.
3.It is caused by the monetary and real factorsIt is caused by the monopolistic group of the society.
4.Monetary and fiscal measuresAdministrative control on price rise and income policy.
5.It represents how price inflation beginsIt represents is so difficult to stop, once started

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