When the inflation is very moderate, it acts as an incentive to traders and producers. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to generation of employment and income.
(i) However, hyper-inflation results in a serious depreciation of the value of money and it discourages savings.
(ii) When the value of money undergoes considerable depreciation, this may even drain out the foreign capital.
(iii) With reduced capital accumulation, the investment will suffer a serious set-back which may have an adverse effect on the volume of production.

(i) Increase in Money Supply: Inflation is caused by an increase in the supply of money which leads to increase in aggregate demand.
(ii) Increase in Disposable Income: When the disposable income of the people increases, it raises their demand for goods and services.
(iii) Increase in Public Expenditure: Government activities have been expanding due to developmental activities and social welfare programmes.

n = pk (or) p = n / k
Where
n is the total supply of money
p is the general price level of consumption goods
k is the total quantity of consumption units the people decide to keep in the form of cash.
because it is measured in terms of consumer goods.
According to Keynes, peoples desire to hold money is unaltered by monetary authority. So, price level and value of money can be stabilized through regulating quantity of money (n) by the monetary authority.
Later, Keynes extended his equation in the following form:
n = p (k + rk') or p = n/(k + rk')
Where,
n = total money supply
p = price level of consumer goods
k = peoples' desire to hold money in hand (in terms of consumer goods) in the total income of them
r = cash reserve ratio
k' = community’s total money deposit in banks, in terms of consumers goods.

(i) It is the slowing down the rate of inflation by controlling the amount of credit (bank loan, hire purchase) available to consumers without causing more unemployment.
(ii) It is defined as the process of reversing inflation without creating unemployment or reducing output in the company.

(i) The Marshall equation is
M = KPY where
(ii) M is the quantity of money
(iii) Y is the aggregate real income of the community
(iv) P is purchasing power of money
(v) K is the fraction of the real income which the public desires to hold in the form of money.
P= M / KY
(vi) The value of money is 1 / P = KY / M.

Demand-Pull Inflation:
(i) Demand and supply decide the inflation level.
(ii) If the demand is high for a product and supply is low, the price of the products increase.
Cost-Push Inflation:
(i) When the cost of raw materials and other inputs rises inflation results.
(ii) Increase in wages paid to labour also leads to inflation.

(i) On the basis of speed there are four types of inflation - Creeping inflation, Walking Inflation, Running inflation, Galloping inflation.
(ii) Demand-Pull inflation, Cost-Push inflation.
(iii) On the basis of inducement - currency inflation, credit inflation, deficit induced inflation, profit induced inflation, scarcity induced inflation, tax induced inflation.

Currency Deposit Ratio (CDR):
It is the ratio of money held by the public in currency to that they hold in bank deposits.
Reserve deposit Ratio (RDR):
Reserve Money consists of vault cash in banks and deposits of commercial banks with RBI.
Cash Reserve Ratio (CRR):
It is the fraction of deposits the banks must keep with RBI.
Statutory Liquidity Ratio (SLR):
It is the fraction of the total demand and time deposits the commercial bank must keep with itself.

(i) Money supply means the total amount of money in an economy.
(ii) It refers to the amount of money which is in circulation in an economy at any given time.
(iii) Money supply determines the price level and interest rates.
(iv) Money supply viewed at a given point of time is a stock and over a period of time it is a flow.

(i) After the barter system and commodity money system, modern money systems evolved.
(ii) Metallic standard is the premier one.
(iii) Some kind of metal, gold or silver is used to determine the standard value of the money and currency.
(iv) Standard coins made out of the metal are the principal coins used under the metallic standard.
(v) These Standard coins are full bodied or full weighted legal tender.
(vi) Their face value is equal to their intrinsic metal value.