INFLATION AND RECESSION
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INFLATION AND RECESSION

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INFLATION AND RECESSION Presentation Transcript

  • 1. Under the Guidance of Garima Mam & Divya Mam Presented By :Group 7 (Section A) Sringarika Somendra Ram Amit Ajit
  • 2. Inflation is the rise in the general level of prices of goods and services in an economy over a period of time. Inflation is a general rise in prices of goods and services. Inflation results in loss of value of money. If some commodity demands a price of 10 rupees 10 years ago, it now demands Rs. 50. This means there is loss in value of rupee by about five times w.r.t. to that commodity. So in general all commodities appreciate over time. Inflation can be defined as a sharp increase in the rate of change of a price index above an acceptable level that lasts over a time period long enough to create expectations of its future persistence.
  • 3.  Deflation – a fall in the general price level. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate ) Disinflation – a decrease in the rate of inflation  Hyperinflation – an out-of-control inflationary spiral  Stagflation – a combination of inflation, slow economic growth and high unemployment; and 
  • 4. Wholesale Price Index (WPI) WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. INDIA uses WPI for calculating inflation. Consumer Price Index (CPI) CPI is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers Most of the developed nation use CPI for calculating inflation.
  • 5. 1. Over-expansion of money supply i.e. excess liquidity in the economy leads to inflation because “too many money would be chasing too few goods”. 2. Expansion of Bank Credit Rapid is also responsible for the inflationary trend in a country. 3. Deficit Financing: The high doses of deficit financing which may cause reckless spending, may also contribute to the growth of the inflationary spiral in a country. 4. A high population growth leads to increase in demand and money income and cause a high price rise. 5. Excessive increase in the price of fuel or food products due to political, economic or natural reasons will lead to inflation for short- as well as long-term.
  • 6.  An increase in the general level of prices implies a decrease in the purchasing power of the currency .  Inflation adds inefficiencies in the market, and make it difficult for companies to budget or plan long-term.  Higher Income tax rates.  Inflation can lead to massive demonstrations and revolutions. For example, inflation and in particular food inflation is considered as one of the main reasons that caused the 2010–2011 Tunisian revolution and the 2011 Egyptian revolution,
  • 7. Economic Impacts The impact of Inflation on the economic system may be classified into 3 kinds – 1) Effects on production (that is changes in the routine of economic activity) 2) Effects on income distribution (that is , re-distribution of income and wealth) 3) Effects on the consumption and welfare .
  • 8. Fuel Hike The foremost effect of inflation in the world economy is seen in prices of fuel . The rising prices of Crude Oil & LPG affects a common man from all sides. Food Price Hike In times of rising inflation, this means that increased cost of living for the population. Commodity prices increases significantly.
  • 9.  Right from the beginning, inflation adds to inequalities of income and wealth.  Inflation leads to a shift in the asset preference of wealth holders.  Inflation leads to balance of payments problems.  Inflation distorts the financial system of the country.
  • 10.  The Government said that liberalization of imports, banning exports and a cut in excise and customs duties are among the steps taken by the Government to control inflation in the country.  The Government has directed the Reserve Bank of India (RBI) to take monetary measures and to put down interest rates to control Inflation.  The Central Government of India has directed the Chief Ministers of all the states in India to take preventive measures to control Inflation like cutting down of sales tax , custom and excise duties .  Some of the state Governments have taken up the initiative to provide lower priced ration goods for the Below Poverty Line (BPL) masses because they are the ones who are the mostly effected .
  • 11. Very few know that there are some positive impacts of inflation as well. However, the beneficial effects of inflation are limited to only its initial phase when the price rise is sufficiently mild. During that period, there is a favourable impact upon both output and employment.
  • 12. Is Inflation Unjust ? Inflation is unjust because it affects different classes of people in the society in different ways and in different degrees. If inflation were to affect everyone in the society in exactly the same manner and to the same the degree, it would not alter the economic and social relationships in the community. But inflation takes away wealth from some people and transfers it to others on a random basis without taking into consideration the sound maxim of social equality.
  • 13.  The Zimbabwean dollar bank note holds the record for the greatest number of zeros shown (100,000,000,000,000). Hungary holds the record for the largest banknote ever issued, but its bank note did not depict all the zeros—the amount was spelled out .  The post-WWII hyperinflation of Hungary holds the record for the most rapid monthly inflation increase ever: 41,900,000,000,000,000% for July 1946, which means prices were .doubled every 14th hour. * Ref.: Zimbabwe Inflation Hits 11,200,000 Percent CNN. August 19, 2008. Accessed: Aug 28 , 2012. every 13.5 hours .  A dollar from 1950 is now worth only $0.12.
  • 14.  Current inflation rate in India , as per July 2012, is 6.87%. Period Inflation(in India) june 2012 - 10.053 % june 2011 - 8.621 % june 2010 - 13.725 % * Source- http://the-finance-blog.blogspot.in/2012/03/inflation-rates-of-india-2012.html
  • 15. Recession  A Recession is the contraction phase of the business cycle.  A general definition of recession is “Gradual Decline in Economic activity lasting over for at least two successive quarters “  National Bureau of Economic Research (NBER) is an non-profit organization that defines the economy ‘s state of recession.  They define recession as : “significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales”.
  • 16. GDP is a good indicator of economy and it can be used to predict whether economy is in recession or not.   Other indicators could be; Unemployment Rate, Consumption Rate, Actual Personal Income Etc.. Source- www.STRATFOR.com
  • 17. The main causes of recession are : 1) Over Production 2) Low Confidence Level OVER PRODUCTION LOW CONFIDENCE LEVEL A situation in which the supply exceeds the nation’s ability to consume what has been produced; Supply > Demand Word of mouth Assignable Cause
  • 18. Word Of Mouth Low Confidence Level of Millions of consumers and producers after they hear many job cuts, Demand comes down, Problems of Companies’ bankruptcy , etc Consumers are fearing that they may lose their jobs; So, they have less confidence to spend money and buy goods. This will result in reduction in demand in the market . Consumers start saving money instead of spending money ,& this is a downward spiral in the economy . Assignable Causes Natural Calamities , Terrorist Attacks etc.
  • 19. Impacts of Recession can be of following two types : 1) Positive Impacts: Positive Impacts which are visible are : a) Lower Inflation Rate. b) Decrease In Import. c) Decrease In Crude Oil Rate. 2) Negative Impacts : Negative Impacts of Recession are : a) Decline in Export. b) Unemployment. c) Decrease in GDP. d) Decrease in Foreign Investments.
  • 20. How to overcome recession? It is unhealthy for any nation to be in Recession, So, Government need to take certain countermeasures to eliminate or reduce the Effect of recession for turnaround. Important Point: Today, it is a market Economy Producers Consumers Can produce and sell at their prices Can decide to buy or not Both Producers and Consumers are free to act; Not a forced action
  • 21. Hence, Government does not have direct control on Producers’ & the Consumers’ behavior .But, they can influence millions of Producers & Consumers with Government’s policies . Government has 2 plans Fiscal Policies Monetary Policies (By Govt.) (By RBI) Government influences the economy by changing how it (Government) spends and collects money RBI manipulates the available supply of money in the country
  • 22. To conclude it can be said that both inflation and recession are part of business cycle which we can not fully control , we can only take preventive measures and monitor their impacts and invest wisely.
  • 23.  http://www.topcatcoaching.com/article/article/show/33  http://facts.randomhistory.com/inflation-facts.html  http://www.inflation.co.in/  http://www.tradingeconomics.com/india/inflation-cpi  http://www.preservearticles.com/201102073974/7-most-harmful-effectsof-inflation-on-different-aspects-of-a-developing-country-likeindia.html  www.investopedia.com/terms
  • 24. Thanks !