Inflation and Deflation

To maintain a balance in the availability of money among the people in the country, the Reserve Bank of India prints currency only after maintaining an adequate reserve ratio in gold, foreign exchange and other assets, assessing the economic situation of the country. Inflation and deflation are conditions in which there is an excess supply of money and a shortage of money. If the quantity of currency is printed more, it can lead to a serious economic crisis. Because if more money reaches the people, they will be ready to spend more money to buy essential goods. Gradually, the price of goods will increase. Due to this, the value of money will decrease compared to that of goods. When prices increase in this way, the quantity of goods and services that can be purchased with each unit of currency decreases. As a result, the purchasing power of money decreases. Inflation is the process of reducing the value of money and causing excessive increase in the price of goods or services over a certain period of time. Deflation is a condition in which the price of goods and services decreases.