UPSC IAS - 2011
Economic growth is usually coupled with:
Year Asked: 2011
Correct Answer
B. Inflation
Detailed Explanation
The correct answer is B. Growth usually comes with inflation, a moderate rise in the general price level. As incomes and spending rise, demand outpaces supply in the short run and prices drift up. This is demand-pull inflation, and a mild, steady rise is read as a sign that the economy is running healthily.
- Deflation is a fall in the general price level. It typically accompanies contraction, when demand collapses, as in the Great Depression or Japan's lost decade of the 1990s.
- Stagflation is stagnant output with high inflation at the same time. It appeared in the 1970s after the oil shocks. It is an exception, not the normal pattern.
- Hyperinflation is runaway price rise, often defined as above 50 per cent a month. Weimar Germany in 1923 and Zimbabwe in 2008 are the standard examples. It signals a breakdown of monetary control, not healthy growth.
The core concept is the link between demand and prices across the business cycle. For Mains (GS-III, Indian Economy), this connects to the growth versus price stability trade-off, and to why RBI has targeted CPI inflation at 4 per cent with a band of plus or minus 2 per cent since the 2016 monetary policy framework.
Trap: Reading 'usually' as 'always', or picking stagflation because it is a famous term. Stagflation is a rare combination, not the default link.
This question appeared in UPSC Prelims 2011 GS Paper-1.
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