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Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
Inflation
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  • 1. MANAGERIAL ECONOMICS INFLATION
  • 2. INFLATION• Inflation is an economic condition in which the aggregate prices are always increasing in a country• The value of money is falling• Inflation is nothing but too much money chasing too few goods
  • 3. DEFLATION• Deflation is the opposite of inflation• A decline in general price levels, often cased by a reduction in the supply of money or credit• Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending
  • 4. TYPES OF INFLATION ON THE BASIS OF SPEED• Creeping inflation The inflationary rate is less than 2%. That means prices are increasing gradually• Walking inflation The inflationary rate is around 5% i.e. a little more than creeping inflation• Running inflation The inflation is growing at the rate of 10%• Galloping inflation Inflation is higher than the earlier stages. Inflation is growing at around 25%
  • 5. TYPES OF INFLATION ON THE BASIS OF INDUCEMENT• Deficit induced Reasons for inflation: Deficit in the balance of payment. Fiscal deficit• Wage induced Due to higher wages and salaries, the money supply increases leading to inflation• Profit induced When an organization earns higher profit, the same is shared with the stakeholders which induces the money supply and reduces the value of money• Scarcity induced Scarcity of raw materials and other input factors may induce price Example: Petrol
  • 6. TYPES OF INFLATION ON THE BASIS OF INDUCEMENT Contd…• Currency induced Value of currency fluctuates due to various internal and external forces• Sectoral inflation A particular sector of a country may be the reason for economic growth or money growth. Example: IT• Foreign trade If there is unfavorable balance of payments position, the country needs more of foreign currency to make payments leading to higher demand for other currencies• War time, Post war, Peace time During war time, the government expenditure on various amenities will induce the inflation After war or natural calamities, to stabilize the economy, the government may spend more
  • 7. EFFECTS OF INFLATION• On producers: Producers will earn more profit due to higher prices• On debtors and credits: Creditors will be happy to receive more returns on their lending• On wage and salary earners: Increase in income will not keep pace with increase in prices and so affected• On fixed income group: Income is fixed but the value of the currency is falling and prices are increasing and hence they are affected• On investors: Investors will receive more returns on their investments• On farmers: Farmers will suffer• On social, moral and political effects: Social and moral values decline with political disturbances
  • 8. • DEMAND PULL INFLATION Aggregate demand is greater than aggregate supply which leads to price hike and inflation• COST PUSH INFLATION An increase in wage rates and an increase in the prices of raw materials leads to increase in cost of goods resulting in inflation called cost push inflation
  • 9. METHODS OF CONTROLLING INFLATION MONETRY MEASURES• Bank rate• Open market operations• Higher reserve ratio• Consumer credit control• Higher margin requirements
  • 10. METHODS OF CONTROLLING INFLATION Contd… FISCAL MEASURE• Regulating government expenditure• Taxation• Public borrowing• Debt management• Over valuation of home currency
  • 11. METHODS OF CONTROLLING INFLATION Contd… OTHERS• Wage policy• Price control measures and rationing the essential supplies• Moral suasion

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