Management Notes

Reference Notes for Management

If inflation is allowed to continue without any check, it is known as

If inflation is allowed to continue without any check, it is known as

    1. Suppressed inflation
    2. Normal inflation
    3. Open inflation
    4. Deflation

 Correct Answer: Open inflation   

Answer Explanation

When inflation is allowed to continue without effective measures to control or curb its impact, it is referred to as open inflation. If the inflationary pressures are not suppressed, prices continue to rise at an accelerating rate, resulting in a decline in the purchasing power of money and various economic distortions.

The term “open inflation” describes a situation in which inflation is uncontrollable, resulting in sustained price increases. A variety of factors may contribute to this type of inflation, including excessive expansion of the money supply, an increase in demand, supply-side constraints, or external shocks. There is a tendency for inflation to escalate in an open inflationary environment, eroding the value of money and creating economic uncertainty.

Economic planning, savings, and investments can be adversely affected by the lack of effective measures to address and mitigate inflationary pressures.

Why the other options are not correct

a. Suppressed Inflation:

A situation in which the actual inflation rate is higher than is officially reported is known as suppressed inflation. By manipulating price data or using price controls to suppress inflation figures, authorities are attempting to artificially suppress inflation. Rather than implying inflation is hidden, suppressed inflation refers to a scenario in which inflation is not controlled.

b. Normal Inflation:

As a general rule, normal inflation refers to an increase in the general price level that is moderate and relatively stable. As described in the question, inflation is a natural and expected feature of an expanding economy, but “normal” does not accurately describe the uncontrollable and escalating nature of unchecked inflation.

d. Deflation:

The opposite of inflation is deflation, which occurs when the general price level of goods and services continuously decreases. As a result, consumer spending and economic activity are reduced. A scenario of falling prices rather than an unchecked inflation scenario cannot be considered deflation.

Conclusion

A scenario in which inflation persists without effective control measures is known as open inflation, or unchecked inflation. In such an environment, prices rise continuously, eroding the value of money and causing economic uncertainty. In order to ensure economic stability and maintain the purchasing power of money, policymakers must manage and address inflation.

The concept of unchecked inflation, as presented in the question, cannot be accurately captured by other alternatives such as suppressed inflation, normal inflation, and deflation.

“Inflation is a state in which the value of money is falling i.e., prices are rising”. Who said this?

Bibisha Shiwakoti

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