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Gen price level 0810
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Gen price level 0810






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Gen price level 0810 Gen price level 0810 Presentation Transcript

  • General Price Level
    • GDP Deflator
    • Consumer Price Index (CPI)
    • Wholesale Price Index (WPI)
  • Deflator
    • Signal’s overall national price changes
      • (nominal GDP / real GDP ) *100
    • Uses domestically produced final goods and services
    • Quantity of weights not fixed
    • One year lag in reporting
    View slide
  • Consumer Price Index
    • Signals change in prices facing the consumer
    • Uses retail prices
    • Basket of goods
      • Consumption goods and services. Included imports
      • Fixed quantity weights
    • Two month lag in reporting
    View slide
  • Construction of CPI Item Base Year Qty 2000-01 Base Yr Prices P*Q Weights Current yr prices (2008-09 Price relative Rice 10 kg Rs. 10/kg 100 .143 Rs. 15/kg 150 Cloth 100 yards Rs.20/yard 200 .286 Rs.22/yard 110 House 2 room Rs.200/ room 400 .571 Rs.250/room 125
  • WPI
    • Signals changes in prices facing the producer
    • Uses wholesale prices
    • Larger basket of goods including intermediate goods but no services
    • Fixed quantity weights
    • Two week lag while reporting
  • Inflation
    • Continuous rise in General price level
      • WPI used in India to track inflation
      • CPI used for measuring changes in cost of living
  • Causes of Inflation
    • Demand Pull
      • Increase in components of AD
        • Usually an increases in G
      • Economy in excess capacity
        • Increase in output without resorting to price rise
      • Economy operating at full capacity
        • Increase in prices
    • Cost Push
      • Increase in cost of production independent of demand
        • Rising salaries and wages
      • Rise in prices and fall in output
  • Inflation and Expectations
    • Can be driven by expectations
  • Costs of Inflation
    • Anticipated inflation vs unanticipated inflation
    • Distribution costs
      • Penalizes people with fixed income
    • Redistribution of income from lender to borrower
    • Diversion of financial savings to land, gold etc
      • Affects investment
    • Competitiveness gets eroded in the external sector
    • Leather Shoe effect
    • Menu effect