1. What do you understand by inflation? Critically evaluate the growth-inflation trade- off.

Approach:

♤ Firstly, define inflation

♤ Then explain that little bit of inflation is desirable in a developing economy as it encourages investment

♤ Explain how beyond a point excess inflation starts eating into the growth itself.

♤ Finally conclude that the relation between the two is not linear. Hence efforts should be made to bring down excess inflation while promoting growth.