Chapter 9 - Inflation

5. First, people who have fixed
incomes are severely
affected during inflation.
Secondly, because of
increased prices, benefits of
pensioners would result in a
net loss.

9. Those who
buy goods
and services
desire to
purchase
goods and
services...
...what the
economy
can produce.

10. The greater the volume of
transactions in the economy. The
higher the level of money required
to finance the transactions. If the
GNP rises, it is but natural that the
transactions requirements for
money will also rise.
The believers in this modern
version are called “monetarists”.
They would argue that the control
of the money supply eventually
determines the direction of
incomes and employment through
the control of GNP.

12. Cost- Push
Inflation
is the type of
inflation where
increases in the
costs of
production push
prices up.

13. Relationship of...
to

15. MEASURES
TO CURB
INFLATION
MEASURES
TO CURB
INFLATION

16. CURB
- If you “curb” something, you
control it and keep it within
limits.
- Curb is equals to check or
restrain.

17. INFLATION
- A general increase in prices
and fall in the purchasing
value of money.

18. CURB INFLATION
- To curb inflation is to reduce
the rate at which the value
of currency goes down.
- Curbing inflations is
therefore beneficial to a
country’s economy.

19. Two methods to curb inflation:
Monetary
Policy
Fiscal
Policy

20. Monetary
Policy

21. Demand
for Goods Supply
D
E
M
A
N
D
This means that for monetary
policy, a “tight money” situation
is suggested, lessening money in
circulation.
1. Increasing interest rates to
inhibit investments
2. To increase the reserve
requirements of banks and
minimize or close rediscounts.
These measure would likewise
LESSEN MONEY IN
CIRCULATION, thus,
DAMPENING DEMAND.

22. G
o
v
e
r
n
m
e
n
t
S
p
e
n
d
i
n
g
R
e
v
e
n
u
e
S
P
E
N
D
I
N
G
If the spending is ESSENTIAL...
NEW TAXES should be
considered to cut down on
consumption and investment.
If the spending is NOT
ESSENTIAL and can be
POSTPONED...
Then the government should
consider POSTPONING such
projects.
Tight money policy through less
government spending might be
ECONOMICALLY CORRECT,
but might be POLITICALLY
UNSOUND.

23. In cases of COST-PUSH Inflation caused
by monopoly, either in business or in
labor, the best counter-remedy is to
BREAK UP THE MONOPOLY POWER
which makes such cost push possible.
A second best solution is a set of
WAGE AND PRICE CONTROLS.

24. The Bangko Sentral has several tools of
policy which it may use to control
money supply...
1. Exercise of ruling authority to
issue paper money;
2. Control of the bank’s reserve
requirments;
3. Use of discount (or rediscount
policy);
4. Use of open market
operations;
5. Selective credit controls;
6. Use of moral suasion (a
persuasion tactic used by an
authority to influence and
pressure, but not force, banks
into adhering to policy).

25. Fiscal
Policy

26. Utilization of...
Public Expenditure
Taxation
Public Debt
To achieve...
Desired Economic Objectives
Stable growth of income over
time
Greater employment
More equitable distribution of
income and wealth

27. Incom
e
Supply
of
Money

28. Monetary Policy Fiscal Policy
The advantage is that it is
easier and quicker to impose
Has the advantage of hitting
both income and money policy
The containment of inflation
rests on both the fiscal and
monetary authorities