Inflation Managerial Economics
Download as PPTX, PDF•9 likes•7,412 views
This document discusses inflation in India. It begins by defining inflation as a persistent rise in general price levels. India uses the Wholesale Price Index to calculate inflation. There are two main types of inflation - demand-pull inflation caused by factors like increased money supply or government spending, and cost-push inflation caused by higher input costs or wages. High inflation harms economic growth and living standards. The government uses monetary and fiscal policies to control inflation, such as increasing interest rates, adjusting reserve requirements, and changing spending and taxation.
Inflation Managerial Economics
- 2. INTRODUCTION Inflation generally means rise in prices. Inflation is an increase in the price of a basket of goods and services that is representative of the economy as a whole. It is a persistence and substantial rise in general level of prices after full employment level of output.
- 3. How India calculates Inflation ? India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy. WPI - WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions.
- 4. Types of Inflation Demand-Pull Inflation The inflation taking place due to demand pressures is known as Demand-Pull Inflation. Increase in quantity of money. Increase in business outlays or government expenditure. Foreign expenditure on goods and services.
- 5. Cost-Push Inflation Increase in the overall price level due to cost-pressures is known as Cost-Push or Supply Side Inflation. Higher wage rates. Higher profit margins. Higher taxes. Higher prices of Input.
- 6. Effects of Inflation Inflation is described as ‘Enemy number one’. A high rate of inflation makes the life of poor miserable. High inflation adversely affects economic growth due to a number of factors : distortion of relative prices, redistribution of wealth between debtors and creditors, aversion to long-term contacts and excessive use of resources for hedging inflation risks.
- 7. Effect on Production or Economic Activities: Adverse effect on the profitability of business organizations. Firms find it profitable to hold rather than produce to earn more profits in the future.
- 8. Control of Inflation If inflation is allowed to gain a footing, it is only likely to get out of control. The different policy measures are used for controlling inflation depending upon source, causes and intensity of inflation.
- 9. Monetary Measures Monetary measures are designed and implemented by the central bank of the country. Monetary measures include quantitative and qualitative control measures that tries to restrict the aggregate demand for goods and services in the economy by restricting the supply of money in the economy.
- 10. Quantitative Measures Bank Rate Open Market Operations (OMO). Variable Reserve Requirements.
- 11. Selective Control Measures Regulating Customer Credit. Higher Margin Requirements. Directives, moral suasion, publicity and direct action.
- 12. Fiscal Measures Fiscal policies, i.e., government expenditure, taxation and debt policies can be used to curb the inflationary pressures in an economy. Since government spending has become an important component of the aggregate spending to almost all countries – developed and underdeveloped – by changing its expenditure in relation to the tax receipts, the government can exert a powerful effect on the flow of money, aggregate demand and economic activity.