The Triple Threat | Article on Global Resession | Harsh Kumar
Rajesh PPT.pptx
1.
2. Introduction
Inflation is defined as a sustained increase in the price level
or a fall in the value of money.
When the level of currency of a country exceeds the level of
production, inflation occurs.
Value of money depreciates with the occurrence of inflation.
3. Cont.
Inflation is commonly understood as a situation of substantial,
and general increase in the level of prices of goods and services
in an economy and a consequent fall in the value of money over a
period of time.
When the general price level rises, value of money falls and as
such each unit of currency buys fewer goods and services.
Consequently, inflation reflects a reduction in the purchasing
power per unit of money.
A chief measure of price inflation is the inflation rate which
expresses percentage change in a general price index (normally
the consumer price index) over time.
4. Definition
According to classical writers inflation is a situation when too much money chases
too few goods.
According to C.C. ROWTHER, “Inflation is State in which the Value of Money is
Falling and the Prices are rising.”
As per Keynes inflation is an imbalance between aggregate demand and aggregate
supply.
In an economy, if the aggregate demand for goods and services exceeds aggregate
supply, then Prices will go on rising.
5. Monetarists’ View
Monetarists’ View: Monetarists assert that inflation has always been
a monetary phenomenon. The quantity theory of money, simply
stated, says that any change in the amount of money in a system will
change the price level.
This theory begins with the Fisher ’s equation of exchange:
MV = PT
Where,
M represent total quantity of money
V is velocity of circulation of money (i.e. average number of time each unit of
money is spent for the purchase of goods and services during a given time
period).
P represents general price level
T refers to the total volume of transactions (real value final goods and services)
6. Monetarists’ View
Here MV represents supply of money
PT represents demand for money.
By manipulation, 𝑷 = 𝑴𝑽
𝑻
Assuming V and T as given, price level varies in directly in proportion to the
quantity of money (M). Thus, if supply of money increases , there is inflation or
rise in prices.
7. Measuring Inflation
Calculating CPI
CPI = weighted current price x 100
weighted base period price
Example = $3.00 (loaf of bread in 2023) X 100
$1.32 (loaf of bread in 1990)
CPI 2017 = 227.3
18. References
Engineering Economic Analysis –NPTEL
http://nptel.ac.in/courses/112107209/
Engineering Economics
http://www.inzeko.ktu.lt/index.php/EE
Fundamentals of Economics and Management
Institutes of Cost Accountants of India www.icmai.in
Modern Economics : Dr. H. L. Ahuja
Principles for Macro-economics- C Rangarajan
