Misconceptions most people have about inflation

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These are some common misconceptions most people have about inflation. Correct the following statements.

(i) When price of inputs increases, firms would not get hit by inflation as they can always pass the increased costs to their customers by increasing the price of the final goods or services.

(ii) Demand-pull inflation occurs anytime and at any phase of the business cycle.

(iii) Inflation means high prices. An inflation rate of 2% in the economy will cause prices of all goods and services to increase at the same time and the same amount. (4 marks) (Note: Not more than 100 words) [Total : 30 marks]

Reference no: EM133128680

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