SEMINAR ON INFLATON
Meaning of inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time resulting in the decline of the value of money ie reduction in the purchasing power per unit of money It is a process of rising prices & not a state of high prices
Definitions of inflation
According to Prof. Samuelson “inflation occurs when general level of prices & cost are rising”.According to Gregory,` it is an increase in the quantity of purchasing power`.Johnson defines inflation,` as the increase in the quantity of money faster than the national output is expanding`
Measuring Inflation
It is measured as the rate of change in the price level. If the price level in the current year is ‘P1’ & in the previous year is ‘Po’, then inflation for the current year is
(P1 – Po)/ Po x 100
Types of inflation
1. On the basis of the degree of the govt control
1.Open inflation
2.Suppressed inflation
When inflationary situation does not exhibit increases in the price level, due to price controls introduced by the government. Such a situation is called suppressed inflation
Inflationary Situation in which no steps are taken to control rising prices is called open inflation
According to Milton,
“it is a process in which prices are allowed to rise without any attempt on part of government to control them. Under open inflation goods are distributed through price mechanism. Price mechanism is a situation in which , those people who have large money to spend, buy more goods.”
The Term Paper on Price Level Unemployment Inflation Demand
Macro-economics Most of the nations of the world today have a free economy. A free economy is one which operates automatically. However, this automatic regulation of the economy is actually achieved by the price level. Price level can be defined as the weighted average of all the final goods and services produced in an economy. A healthy economy is characterized by a stable price ...
2.On the basis of Rate of inflation
* Moderative Inflation
* Running Inflation
* Galloping Inflation
* Hyper Inflation
3. On the basis of political conditions :
1. War time inflation-
In order to meet the war expenses government increases the supply of money. Large proportion of the production is bought by government itself. Relatively small proportion is left to the general public.
2 .Peace time inflation-
Underdeveloped countries need large resources for economic planning. In order to mobilize resources, government has to resort deficit financing .It leads to inflation which is known as peace time inflation.
Effects of inflation
* Investment
* Interest rates
* Unemployment
* Decrease in the purchasing power
Causes of inflation
1. Demand-pull inflation
2.Cost-push inflation
Demand Pull Inflation occurs when Aggregate demand increases at a rate faster than the capacity of the economy to produce goods and services .When wages increase within economic system and people will have more money to spend on consumer goods which results in an increase in demand for products.When companies raise prices in order to balance supply and demand.
COST PUSH INFLATION
When companies are faced with increased input costs like raw goods and materials or wages, they will preserve their profitability by passing this increased cost of production onto the consumer in the form of higher prices.Cost Push Inflation occurs when prices are pushed up by rising costs to producers who compete with each other for increasingly scarce resources .
Indian Inflation Rate
The inflation rate in India was last reported at 4.86 percent in June of 2013 as compared to 4.70 percent in May due to higher cost of food. From 1969 until 2013, the average inflation rate in India was 7.72 percent reaching an historical high of 34.68 percent in September of 1974 and a record low of -11.31 percent in May of 1976.
The Essay on How inflation affects the functions of money?
Inflation alludes to a sustained general rise in the prices of goods and services. In other words, it means a rise in the level of cost of living. Money is anything that is generally acceptable by the society for the exchange of goods and services. There are different functions of money such as: To act as a medium of exchange –Money is used to trade in goods and services both internally and ...
Measures to control inflation::
1. Monetary measures- Classical economists are of the view that inflation can be checked by controlling the supply of money. Some of the important monetary measures to check the inflation are as under:
Control over money-
It is suggested that to check inflation government should put strict restrictions on the issue of money by the central bank.
Credit control-
Central bank should pursue credit control policy .In order to control the credit it should increase the bank rate ,raise minimum cash reserve ratio etc. It can also issue notice to other banks in order to control credit.
2.Fiscal measures- Measures taken by the government to control inflation.
Decrease in public expenditure- One of the main reasons of inflation is excess public expenditure like building of roads ,bridges etc. Government should drastically scale down its non essential expenditure.
Delay in payment of old debts: Payment of old debts that fall due should be postponed for sometime so that people may not acquire extra purchasing power.
Increase in taxes : Government should levy some new direct taxes and raise rates of old taxes.
Over valuation of money: To control the over valuation of money it is essential to encourage imports and discourage exports
Other measures
1 Increase in the production- One of the major causes of the inflation is the excess of demand over supply ,so those goods should be produced more whose prices are likely to rise rapidly .In order to increase production public sector should be expanded and private sector should be given more incentives.
2 Proper commercial policy- Those goods which are in scarcity should be imported as much as possible from other countries and their export should be discouraged.
The Essay on Methods To Control Inflation
... banks. II). Fiscal Measures Fiscal measures to control inflation include taxation, government expenditure and public borrowings. The government can also take some protectionist measures (such as banning ... it is said to have adopted a dear money policy. The increase in bank rate increases the cost of borrowing which reduces commercial ...
3 Encouragement to savings –During inflation government should come out with attractive saving schemes. It may issue 5 or 10 year bonds in order to attract savings.
4 Proper investment policy- Investment in those industries should be increased wherein more production of goods can be generated over a short period of time .Less investment should be made in industries having long production period.
5 Marginal requirements- It is the difference between the value of security and loan advanced .
