Deflation: When the average price level decreases continuously for a given interval in an economy then it is referred as deflation. It leads to recession in an economy. Deflation is not healthy for an economy. Inflation: When the price of any good increases continuously for an interval of time it is called inflation. It leads to decrease in the purchasing power . A controlled inflation is good for economy. Hyperinflation: When the inflation rate is very high and is usually for a longer duration then it is termed as hyperinflation. It has a very harsh impact on an economy as it leads to depression. Inflation Tax: It is a type of tax which is paid by the asset or income holders due to increase in the rate of inflation. It is a kind of capital gain tax resulting due to rise in price. The formula to calculate inflation tax is:

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Chapter 31, Problem 4P

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Concept Introduction:

Deflation: When the average price level decreases continuously for a given interval in an economy then it is referred as deflation. It leads to recession in an economy. Deflation is not healthy for an economy.

Inflation: When the price of any good increases continuously for an interval of time it is called inflation. It leads to decrease in the purchasing power. A controlled inflation is good for economy.

Hyperinflation: When the inflation rate is very high and is usually for a longer duration then it is termed as hyperinflation. It has a very harsh impact on an economy as it leads to depression.

Inflation Tax: It is a type of tax which is paid by the asset or income holders due to increase in the rate of inflation. It is a kind of capital gain tax resulting due to rise in price.
The formula to calculate inflation tax is:

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