The correct answer is (a) and (c). Explanation & Key Takeaways: • In economics, inflation (or less frequently, price inflation) is a general rise in the price level of an economy over a period of time. • When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange(money) and unit of account within the economy. Hence statement (b) is incorrect. Effect of Inflation on the Economy • The effect of inflation is not distributed evenly in the economy. • There are chances of hidden costs for different goods and services in the economy. • Sudden or unpredictable inflation rates are harmful to an overall economy. • They lead to market instability and thereby make it difficult for companies to plan a budget for the long-term. • Inflation can act as a drag on productivity as companies are forced to mobilize resources away from products and services to handle the situations of profit and losses from inflation. • Moderate inflation enables labor markets to reach equilibrium at a faster pace. • This also impacts the cost of living in a country. • When inflation is high, the cost of living gets higher as well, which ultimately leads to a deceleration in economic growth. • Higher inflation increases income inequality, and the impact is strongest in hyperinflation countries. Hence statement (d) is incorrect. • Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. Hence statement (c) is correct. Different types of Inflation based on the rate of rising in prices Creeping Inflation • Price rise at a very slow rate (less than 3%) like that of a snail or creeper is called Creeping Inflation. • It is regarded as safe and essential for economic growth. Hence statement (a) is correct. Walking or trotting inflation • Price rise moderately at the rate of 3 to 7% (or) less than 10% is called Walking or trotting inflation. • It is a warning signal to the government to be prepared to control inflation. • If inflation crosses this range, it will have serious implications for the economy and individuals. Running Inflation • Running inflation means prices rise rapidly like the running of a horse at a rate of 10-20%. • It affects the economy adversely. Hyperinflation or Galloping Inflation • The price rise very fast at a double or triple-digit rate from 20 to 100% or more is called Hyperinflation or galloping inflation. • Such a situation brings the total collapse of the monetary system because of the continuous fall in the purchasing power of money. So, the correct answer is option 4.