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After two years, high inflation moderated in the later part of 2011–12 in response to past monetary tightening and growth deceleration. High inflation had adverse consequences on welfare and on saving and investment, particularly household saving in financial assets. The most serious consequence of inflation is __________. As growth slowed down, in part due to high inflation, it further reduced the welfare of the common man through adverse impact on employment and incomes.

1. its destructive allocation impact on the industries that were lately coming up.
2. its negative impact on the rich and high-profile people.
3. its adverse distributional impact on the poor, people without social security and pensioners.
4. its wayward consequences on the public distribution system meant for the poor.
5. its unfavourable bearing on day to day commodities that are used by the common man.

Correct answer: its adverse distributional impact on the poor, people without social security and pensioners.

Solution

The passage discusses inflation’s effect on welfare, saving, investment, employment, and incomes. The most serious consequence is not just higher prices, but the unequal burden it places on vulnerable groups. Option 3 correctly identifies the poor, those without social security, and pensioners as the most affected.

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