INFLATION
Definitions <ul><li>In economics,  inflation  is a rise in the general level of prices of goods and services in an economy...
That IS…. <ul><li>1950’s </li></ul><ul><li>1 rupee = </li></ul><ul><li>2000 </li></ul><ul><li>1 rupee =  </li></ul>Milky B...
Causes <ul><li>The expectation of a seller accepting currency to be able to exchange that currency at a later time for goo...
Related Definitions <ul><li>RATE OF INFLATION : The rate at which the prices of everything go up is called the &quot;rate ...
VIEWS <ul><li>DEMAND-PULL : Inflation occurs when aggregate demand exceeds existing supplies, forcing price increases and ...
EFFECTS <ul><li>Buys Fewer goods and items. </li></ul><ul><li>With inflation lenders or depositors who are paid a fixed ra...
EFFECTS <ul><li>Some inflation is good for the economy, as it would allow labor markets to reach equilibrium faster. </li>...
CONTROLLING INFLATION <ul><li>MONETARY POLICY : High Interest rates, slow growth of money supply. Emphasize the need to re...
So, what should be done.. <ul><li>DO not keep your money stagnant. </li></ul><ul><li>Always  INVEST . </li></ul><ul><li>Or...
THANK YOU SHARAT KAREKATT S4 AEI PRESENTED BY
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Inflation

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Just another small case study in Fourth semester

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Inflation

  1. 1. INFLATION
  2. 2. Definitions <ul><li>In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time </li></ul><ul><li>Inflation is a decline in the real value of money </li></ul><ul><li>When the general price level rises, each unit of currency buys fewer goods and services. </li></ul><ul><li>Repetitive price increases, erode the purchasing power of money and other financial assets with fixed values, creating serious economic distortions and uncertainty </li></ul><ul><li>According to Sir Ronald Reagan: </li></ul><ul><li>“ Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man”. </li></ul>
  3. 3. That IS…. <ul><li>1950’s </li></ul><ul><li>1 rupee = </li></ul><ul><li>2000 </li></ul><ul><li>1 rupee = </li></ul>Milky BAR Naranga Mittayi
  4. 4. Causes <ul><li>The expectation of a seller accepting currency to be able to exchange that currency at a later time for goods that are desirable as a buyer. </li></ul><ul><li>The quantity equation of money, that relates the money supply, its velocity, and the nominal value of exchanges. This theory is widely accepted. </li></ul>QUALITY THEORY: QUANTITY THEORY :
  5. 5. Related Definitions <ul><li>RATE OF INFLATION : The rate at which the prices of everything go up is called the &quot;rate of inflation&quot;. For example, if the price of something is Rs.100 this year and next year the price becomes approximately Rs.104 then the rate of inflation is 4%. </li></ul><ul><li>RATE OF RETURN : The rate of return is how much you make on an investment. Suppose you invest Rs.100 in the market and over a year, you make Rs.120, then you rate of return is 20%. In effect, you are loosing money! </li></ul><ul><li>Inflation eats into your money </li></ul>
  6. 6. VIEWS <ul><li>DEMAND-PULL : Inflation occurs when aggregate demand exceeds existing supplies, forcing price increases and pulling up wages, materials, and operating and financing costs. </li></ul><ul><li>COST-PUSH : Inflation occurs when prices rise to cover total expenses and preserve profit margins. </li></ul><ul><li>Built-In Inflation : Induced by adaptive expectations, often linked to the “price spiral&quot; because it involves workers trying to keep their wages up with prices and then employers passing higher costs on to consumers as higher prices as part of a &quot;vicious circle.&quot; Built-in inflation reflects events in the past, and so might be seen as hangover inflation. </li></ul><ul><li>Other than these there are several other views on Inflation namely Monetarist View , Rational Expectation theory , Austrian Theory , Real Bill doctrine . </li></ul>
  7. 7. EFFECTS <ul><li>Buys Fewer goods and items. </li></ul><ul><li>With inflation lenders or depositors who are paid a fixed rate of interest on loans or deposits will lose purchasing power from their interest earnings, while their borrowers benefit. </li></ul><ul><li>Uncertainty about the future purchasing power of money discourages investment and saving. </li></ul><ul><li>Purchasing power is redistributed from those on fixed incomes such as pensioners towards those with variable incomes whose earnings may better keep pace with the inflation. </li></ul><ul><li>Negative impacts to trade. </li></ul><ul><li>Results in Hoarding, loss of allocative efficiency, unsustainable development. </li></ul>NEGATIVE
  8. 8. EFFECTS <ul><li>Some inflation is good for the economy, as it would allow labor markets to reach equilibrium faster. </li></ul><ul><li>DEBT Relief. </li></ul><ul><li>The Nobel prize winning economist James Tobin had argued that a moderate level of inflation can increase investment in an economy leading to higher steady state level of income. </li></ul>POSITIVE
  9. 9. CONTROLLING INFLATION <ul><li>MONETARY POLICY : High Interest rates, slow growth of money supply. Emphasize the need to return to gold standards. </li></ul><ul><li>FIXED EXCHANGE RATES : Controls inflation to great extent. </li></ul><ul><li>WAGE AND PRICE CONTROL: It was a temporary method. Is considered a failure in long run. </li></ul><ul><li>COST OF LIVING ALLOWANCE: Fixed Payments tied to cost-of-living-index. So the effect is reduced. </li></ul>
  10. 10. So, what should be done.. <ul><li>DO not keep your money stagnant. </li></ul><ul><li>Always INVEST . </li></ul><ul><li>Or put it in a bank. </li></ul><ul><li>When investing make sure the rate of inflation is grater than the rate of return. </li></ul><ul><li>Try to follow the financial policies and keep at least a vague idea about this system. Because no matter how much we avoid, It Affects Us. </li></ul>
  11. 11. THANK YOU SHARAT KAREKATT S4 AEI PRESENTED BY

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