The phenomenal rise in prices accompanied by increased real income is known as
-
- inflation
- deflation
- reflation
- None of the above
Correct Answer: Reflation
Answer Explanation
The correct answer is (c) Reflation. Reflation is a distinct economic phenomenon in which there is a significant increase in prices accompanied by a simultaneous increase in real income. As a result of this unique combination, reflation stands out from other economic scenarios. As well as having specific implications for economic growth.
Inflation is a policy undertaken by governments or central banks to stimulate demand, boost economic activity, and combat deflation or economic stagnation. Among the measures are increasing government spending, reducing taxes, and implementing accommodating monetary policies.
In a reflationary context, prices indeed experience an upward trajectory, but the crucial distinction is that this price increase is accompanied by a rise in real income. Inflation is accounted for in real income, allowing purchasing power to be more accurately represented. Thus, as prices increase in reflationary conditions, consumer income rises, which helps them afford goods and services even more.
The concept of reflation is especially relevant in periods where an economy faces the risk of deflation a prolonged decrease in prices which can lead to reduced consumer spending and business investment. In order to prevent such a deflationary spiral and boost economic growth, policymakers implement reflationary policies.
Why the other options are not correct
a. Inflation:
Inflation refers to the general increase in the price levels of goods and services. It does not necessarily increase real income at the same time. Inflation is possible for inflation to erode consumers’ purchasing power as prices rise. Which results in a potential decline in their ability to afford goods and services. It is important to distinguish between inflation and reflation, since reflation focuses on the combination of increased real income and rising prices.
b. Deflation:
As opposed to the question’s description of a phenomenal rise in prices, Deflation is a sustained decrease in the general price level of goods and services. In contrast to deflation, reflation seeks to counter economic challenges such as reduced consumer spending and business activity. So, deflation is not the correct answer.
d. None of the above:
As option (c) “reflation” accurately describes the economic scenario described in the question, the option “None of the above” does not apply. According to the concept of a substantial increase in prices followed by an increase in real income, reflation is the appropriate choice.
Conclusion
As a result, reflation is precisely defined as an increase in prices accompanied by a rise in real income at the same time. Economic activity is stimulated, deflationary risks are countered, and growth is fostered by inflationary policies. Deflation and inflation are related terms, but they don’t describe the specific dynamic of reflation, where prices rise along with income increases.
The intricacies of an economy’s behavior and the role of policy interventions must be understood from these distinctions. The phenomenal rise in prices accompanied by increased real income is known as reflation.
When government interrupts price rise, there is
I am Bibisha Shiwakoti a final year BBS student from Janapremi College. I have completed my higher secondary education at Kalinchowk Secondary School.
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