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Economics of Inflation and Debt Analysis

The document presents a series of questions related to inflation and its impact on various economic factors, specifically focusing on the Indian economy. It includes tasks such as calculating inflation rates using WPI and CPI, analyzing historical inflation data, and discussing the implications of inflation and deflation. Additionally, it prompts the exploration of high inflation years in India and the government's debt sustainability in relation to inflation and interest rates.

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15 views2 pages

Economics of Inflation and Debt Analysis

The document presents a series of questions related to inflation and its impact on various economic factors, specifically focusing on the Indian economy. It includes tasks such as calculating inflation rates using WPI and CPI, analyzing historical inflation data, and discussing the implications of inflation and deflation. Additionally, it prompts the exploration of high inflation years in India and the government's debt sustainability in relation to inflation and interest rates.

Uploaded by

sakshamsucks96
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

HS-203: Introduction to Economics

Questions

August 7, 2025

1. Inflation erodes the real value of money, often redistributing wealth between borrowers,
lenders, savers, and investors. How does unexpected inflation affect fixed-income cred-
itors and borrowers, and how might equity investors experience gains or losses under
such conditions? Discuss with examples.
2. The Indian economy reports the following data (Base year - 2011-12):
Indicator June 2024 June 2025
WPI 154.0 153.8
CPI 190.2 194.2

(a) Compute the year-on-year inflation rate using both WPI and CPI.
(b) Explain the reason for any differences observed between the two measures of in-
flation.
3. The inflation rates in a country over five years are given below:
Year Inflation Rate
2020 9%
2021 7%
2022 4%
2023 2%
2024 2%

(a) Identify and explain the term used to describe this situation.
(b) "Inflation is injustice but deflation is inexpedient." Explain.
4. Pick out any three years after 2011-12 when India faced an annual average CPI inflation
rate above 6%. Read two research articles or news articles for each year chosen and find
out-
(a) Major factor(s) for high inflation during the period as reported in the references.
(For example, a trade war between India and another foreign country led to a rise
in import prices, leading to higher domestic inflation.)
(b) State which all factors of high inflation identified earlier occur more in developing
countries like India when compared to developed countries, and why?

1
Note: Clearly provide references/links for the articles read.
5. India’s Union government’s domestic debt-to-GDP ratio rose to 58.7% in FY2020–21
amid pandemic related borrowing, before easing slightly to 55.1% by FY2023. This
raise concerns about medium-term debt sustainability.
Provide a scatterplot and discuss the following.
(a) Does an increase in inflation correspond to a reduction in the real effective interest
rate on union’s public debt, thereby lowering the real cost of debt servicing for the
government?
Hint: Use nominal 10-Year G-Sec Yield; inflation (CPI); Time period- 2011-12 to 2022-23.
Data will be shared if needed.

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