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1.  What is suppressed inflation?

Ans: Existing inflation disguised by government price controls or other interferences in

the economy such as subsidies. Such suppression, nevertheless, can only be temporary because

no governmental measure can completely contain accelerating inflation in the long run. Also

called repressed inflation. 

2.  What is ratchet effect?

Ans: Ratchet effect is an instance of the restrained ability of human processes to be reversed

once a specific thing has happened, analogous with the mechanical ratchet that holds the spring

tight as a clock is wound up. It is related to the phenomena of featuritis and scope in the

manufacture of various consumer goods, and of mission creep in military planning.

A 'Ratchet effect' can be seen in long-term trends in the production of many consumer goods.

Year by year, automobiles gradually acquire more features. Competitive pressures make it hardfor manufacturers to cut back on the features unless forced by a true scarcity of raw materials

(e.g., an oil shortage that drives costs up radically). University textbook publishers gradually get

"stuck" in producing books that have excess content and features. Airlines initiate frequent-flyer

programs that become ever harder to terminate. Successive generations of home appliances

gradually acquire more features; new editions of software acquire more features; and so on. With

all of these goods, there is ongoing debate as to whether the added features truly improve

usability, or simply increase the tendency for people to buy the goods .

3.  What is MEC (marginal efficiency of capital)

Ans: Annual percentage yield earned by the last additional unit of capital. It is also known

as marginal productivity of capital, natural interest rate, net capital productivity, and rate of 

return over cost. The significance of the concept to a business firm is that it represents the market

rate of interest at which it begins to pay to undertake a capital investment. If the market rate is

10%, for example, it would not pay to undertake a project that has a return of 2 %, but any return

over 10% would be acceptable. In a larger economic sense, marginal efficiency of capital

influences long-term interest rates. This occurs because of the law of diminishing returns as it

applies to the yield on capital. As the highest yielding projects are exhausted, available capital

moves into lower yielding projects and interest rates decline. As market rates fall, investors are

able to justify projects that were previously uneconomical. This process is called diminishing

marginal productivity or declining marginal efficiency of capital.

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4.  What Is Autonomous And Induced Investment?

Ans: Autonomous investment is motivated by service motive and is independent of margin

of profit. It is income inelastic and as such, it is not influenced by variation in income. It is notprofit oriented and accordingly, it remains unaffected by the variation in income, price, wage,

rent, etc.

Autonomous investment is made by the public bodies or by the private bodies (organization or

individuals). Erection of street light poles, by the municipal bodies, construction of high ways

and public buildings by the government and construction of private schools, buildings, charitable

houses etc. Private organizations are good examples of autonomous investment.

Induced investment refers to the investment which is motivated by the margin of profit. The

higher the margin of profit is, the larger the volume of investment. In other words, it is profit

originated investment and varies with the margin of profit in the like direction. Margin of profitdepends upon other things remaining the same, on the size of income and as such, induced

investment is income elastic. It means that it varies with the increase in the same direction. As

the income rises the investment also rises and vice versa.

Induced investment is always associated with enterprise, may it be taken by the government or

the private individuals or organizations.

5.  What is Inflation rate?

Ans: Inflation rate is a measure of inflation, the rate of increase of a price (for example,

a consumer price index). It is the percentage rate of change in price level over time. The rate of 

decrease in the purchasing power of money is approximately equal.

The inflation rate is used to calculate the real interest rate, as well as real increases in wages. 

The rate is usually expressed in annualized terms, though measurement periods are not usually

one year.

If P0 is the current average price level and P − 1 is the price level a year ago, the rate of inflation

during the year might be measured as follows:

After the year the purchasing power of a unit of money is multiplied by a factor 1 / (1 +

inflation rate).

There are two general methods for calculating inflation rates - one is to use a base period, the

other is to use "chained" measurements. Chained measurements adjust not only the prices,

but the contents of the market basket involved, with each price period. More common,

however, is the base period reference. This can be seen from inflation reports from the

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"relative weight" assigned to each component, and by looking at the technical notes to see

what each item in an inflation basket represents and how it is calculated.

6.  What is Public Expenditure?

Ans: Public Expenditure refers to Government expenditure i.e. Government spending. It is

incurred by Central, State and Local governments of a country.Public expenditure can be defined as, "The expenditure incurred by public authorities like

central, state and local governments to satisfy the collective social wants of the people is known

as public expenditure."

Throughout the 19th Century, most governments followed laissez faire economic policies & their

functions were only restricted to defending aggression & maintaining law & order. The size of 

public expenditure was very small.But now the expenditure of governments all over has

significantly increased. In the early 20th Century, John Maynard Keynes advocated the role of 

public expenditure in determination of level of income and its distribution.

In developing countries, public expenditure policy not only accelerates economic growth &promotes employment opportunities but also plays a useful role in reducing poverty and

inequalities in income distribution.

7.  What is Economic Statistics

Ans: Economic statistics is a topic in applied statistics that concerns the collection, processing,

compilation, dissemination, and analysis of economic. It is also common to call the data

themselves 'economic statistics', but for this usage see economic data. The data of concern toeconomic statistics may include those of an economy of region, country, or group of countries.

Economic statistics may also refer to a subtopic of official statistics for data produced by official

organizations (e.g. national statistical services, intergovernmental organizations such as UnitedNations, European Union or OECD, central banks, ministries, etc.). Analyses within economic

statistics both make use of and provide the empirical data needed in economic research, whether

descriptive or econometric. They are a key input for decision making as to economic policy. 

Inflation is defined as the persistent rise in the aggregate price level. However it should be kept in

mind that inflation is a state of rising prices and not a state of high prices.

8.  What are the causes of Inflation?

1) Increase in the money supply in the economy or increase in the velocity of the circulation of 

money.

2) Increase in the government expenditure in the economy.

3) Increase in the investment expenditure in the economy.

4) Deficit financing is an important cause of inflationary rise in the prices.

5) Increase in the population growth of the economy. It is a very important cause of rise in the

basic food prices in a developing country like India.

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6) Increase in the export of the economy. It creates a shortage of commodities in the domestic

market.

7) Increase in indirect taxes like sales tax. It increases the cost of production for the producers.

Hence they raise the prices of their manufactured items.

8) Decrease in indirect taxes like income tax.

9) Increase in hoardings, profiteering and black marketing. When people are engaged in black 

and illegal activities, demand for essential and luxury items rises.

10) Increase in wage rates. It causes the producers to raise the prices of their goods to balance

their profits.

Control of Inflation

1) Monetary Measures: 

Monetary measures can help in reducing the pressure of demand.Monetary measures to control

inflation includes:

(i)Higher bank rate.

(ii)Sale of government securities in the open market.

(iii)Increase in reserve requirements.

(iv)Selective credit control measures like Consumer Credit Control,Rationing

All these measures lead to fall in money supply that takes away the extra purchasing power of 

the people.Hence aggregate demand falls and prices of the commodities also falls.

2) Fiscal Measures: 

Fiscal Measures also help in reducing the pressure of demand.These measures include:(i)A reduction in government spending.

(ii)Increase in tax rates.

(iii)Increase in public borrowings.

3)Other Measures: 

Other measures like expansion of output,wage policy,price control and rationing can be used to

supplement the monetary fiscal measures undertaken to combat inflationary measures.Moreover

suitable income policy can be adopted to control cost push inflation.