topics covered Inflation Interest rate Employment Saving & investment Monitory & fiscal systems & policies.

1. ECONOMICS & SOCIOLOGY.

2. TOPICS:
 Inflation
 Interest rate
 Employment
 Saving & investment
 Monitory & fiscal systems & policies.

3. What Is Inflation?
Inflation is a quantitative measure of the rate at which the average
price level of a basket of selected goods and services in an
economy increases over a period of time. It is the constant rise in
the general level of prices where a unit of currency buys less than it
did in prior periods. Often expressed as a percentage, inflation
indicates a decrease in the purchasing power of a nation’s
currency.

4.  Inflation is the rate at which the general level of prices for goods
and services is rising and, consequently, the purchasing power of
currency is falling.
 Inflation is classified into three types:
Demand-Pull inflation,
Cost-Push inflation,
Built-In inflation.
 Most commonly used inflation indexes are the Consumer Price
Index (CPI) and the Wholesale Price Index (WPI).
 Inflation can be viewed positively or negatively depending on the
individual viewpoint.

5. EXAMPLE:
 As prices rise, a single unit of currency loses value as it buys fewer goods
and services. This loss of purchasing power impacts the general cost of
living for the common public which ultimately leads to a deceleration in
economic growth. The consensus view among economists is that
sustained inflation occurs when a nation's money supply growth outpaces
economic growth.

6.  To combat this, a country's appropriate monetary authority,
like the central bank, then takes the necessary measures to
keep inflation within permissible limits and keep the economy
running smoothly.
 Inflation is measured in a variety of ways depending upon the
types of goods and services considered and is the opposite of
deflation which indicates a general decline occurring in prices
for goods and services when the inflation rate falls below 0%.

7. Causes of Inflation:
 Rising prices are the root of inflation, though this can be attributed to different factors. In
the context of causes, inflation is classified into three types:
Demand-Pull inflation,
Cost-Push inflation,
Built-In inflation.
 Demand-Pull Effect : It occurs when the overall demand for goods and services in an
economy increases more rapidly than the economy's production capacity. It creates a
demand-supply gap with higher demand and lower supply, which results in higher prices.
For instance, when the oil producing nations decide to cut down on oil production, the
supply diminishes. It leads to higher demand, which results in price rises and contributes
to inflation.

8.  Cost-Push Effect: Cost-push inflation is a result of the increase in the prices of
production process inputs. Examples include an increase in labor costs to
manufacture a good or offer a service or increase in the cost of raw material. These
developments lead to higher cost for the finished product or service and contribute to
inflation.
 Built-In Inflation: Built-in inflation is the third cause that links to adaptive expectations.
As the price of goods and services rises, labor expects and demands more
costs/wages to maintain their cost of living. Their increased wages result in higher cost
of goods and services, and this wage-price spiral continues as one factor induces the
other and vice-versa.

9. Types of Inflation Indexes:
 Consumer Price Index: CPI is a measure that examines the weighted average of
prices of a basket of goods and services which are of primary consumer needs.
They include transportation, food, and medical care. CPI is calculated by taking
price changes for each item in the predetermined basket of goods and averaging
them based on their relative weight in the whole basket.
 Wholesale Price Index: WPI is another popular measure of inflation, which
measures and tracks the changes in the price of goods in the stages before the
retail level. While WPI items vary from one country to other, they mostly include
items at the producer or wholesale level. For example, it includes cotton prices for
raw cotton, cotton yarn, cotton gray goods, and cotton clothing.

10.  Producer Price Index: producer price index is a family of indexes that
measures the average change in selling prices received by domestic
producers of goods and services over time. The PPI measures price
changes from the perspective of the seller and differs from the CPI
which measures price changes from the perspective of the buyer.
 Formula for Measuring Inflation:
The rise in Inflation:
(Final CPI Index Value/Initial CPI Value).

11. What Is an Interest Rate?
The interest rate is the amount a lender charges for the use of
assets expressed as a percentage of the principal. The interest rate
is typically noted on an annual basis known as the annual
percentage rate (APR). The assets borrowed could include cash,
consumer goods, or large assets such as a vehicle or building.

13. When Are Interest Rates Applied?
 Interest rates apply to most lending or borrowing transactions. Individuals
borrow money to purchase homes, fund projects, launch or fund businesses, or
pay for college tuition. Businesses take loans to fund capital projects and
expand their operations by purchasing fixed and long-term assets such as
land, buildings, and machinery. Borrowed money is repaid either in a lump sum
by a pre-determined date or in periodic installments.
 The money to be repaid is usually more than the borrowed amount since
lenders require compensation for the loss of use of the money during the loan
period. The lender could have invested the funds during that period instead of
providing a loan, which would have generated income from the asset. The
difference between the total repayment sum and the original loan is the interest
charged. The interest charged is applied to the principal amount.

14. EXAMPLE:
 if an individual takes out a $300,000 mortgage from the bank and the loan
agreement stipulates that the interest rate on the loan is 15%, this means that
the borrower will have to pay the bank the original loan amount of $300,000
+ (15% x $300,000) = $300,000 + $45,000 = $345,000.
 If a company secures a $1.5 million loan from a lending institution that
charges it 12%, the company must repay the principal $1.5 million + (12% x
$1.5 million) = $1.5 million + $180,000 = $1.68 million.
 Simple interest = principal x interest rate x time.
 Compound interest = principal x [(1 + interest rate)n – 1].
Where:
n is the number of compounding periods.

15. What Is Employment?
 Employment is an economic situation in which all available labor resources are
being used in the most efficient way possible. Full employment embodies the
highest amount of skilled and unskilled labor that can be employed within an
economy at any given time.
 Employment is where all available labor resources are being used in the most
efficient way possible.
 Employment embodies the highest amount of skilled and unskilled labor that
can be employed within an economy at any given time.
 Economists define various types of full employment based on their theories, as
targets for economic policy to move the economy towards.

17. Types of Employment:
1. Natural rate of unemployment represents only the amount of unemployment due
to structural and frictional factors in labor markets. The natural rate serves as an
achievable approximation of full employment while accepting that technological
change and the normal transaction costs of labor markets will always mean
some modest unemployment at any given point in time.
2. Non-accelerating inflation rate of unemployment (NAIRU) represents the rate of
unemployment that is consistent with a low, stable rate of price inflation. The
NAIRU is useful as a policy target for economic policymakers who operate under
a dual mandate to balance full employment and stable prices. It is not full
employment but is the closest the economy can be to full employment without
excessive upward pressure on prices from increasing wages.

18. WHAT IS Saving?
We save for purchases and emergencies. Saving money typically means it is
available when we need it and it has a low risk of losing value. It is important to
track your savings, putting a deadline, or timeline, and a value to your goals. For
example, if you are saving for your annual family vacation, you might want to
target $3,000 to save in nine months to withdraw at the end of the year. You then
know how much you need, how much to save monthly, and the ability to take the
money out without fees to spend on that treasured vacation.

19. WHAT IS INVESTING?
When investing, it is important to invest wisely. You will have a better return if you
begin investing early. Understanding different investment vehicles, what they are
for, and how to use them is imperative to being successful. We invest for long
term goals, such as our children’s college fund or retirement. We use specific
vehicles that allow for growth. If our children have 10-plus years before they go to
college, we can invest monthly in a vehicle like an education savings account
(ESA) or a 529 plan. These allow for withdrawals when your child goes to college.
Long-term college plans can help you successfully reach that goal.

20.  Saving money typically means it is available when we need it and it has a
low risk of losing value.
 Investing typically carries a long-term horizon, such as our children’s
college fund or retirement.
 The biggest and most influential difference between saving and investing is
risk.
 Short term is under 7 years and long term is over 7 years, but when it
comes to saving and investing, those figures are based more on the
specifics of the goal

21. 
Monetary Policy:
 Central banks typically have used monetary policy to either stimulate an economy or to
check its growth. By incentivizing individuals and businesses to borrow and spend, the
monetary policy aims to spur economic activity. Conversely, by restricting spending and
incentivizing savings, monetary policy can act as a brake on inflation and other issues
associated with an overheated economy.
 Monetary policy is more of a blunt tool in terms of expanding and contracting the money
supply to influence inflation and growth and it has less impact on the real economy. For
example, the Fed was aggressive during the Great Depression. Its actions prevented
deflation and economic collapse but did not generate significant economic growth to
reverse the lost output and jobs.

22. FLOW CHART

23. Fiscal Policy:
 Generally speaking, the aim of most government fiscal policies is to target the
total level of spending, the total composition of spending, or both in an
economy.2 The two most widely used means of affecting fiscal policy are
changes in government spending policies or in government tax policies.
 If a government believes there is not enough business activity in an economy, it
can increase the amount of money it spends, often referred to as stimulus
spending. If there are not enough tax receipts to pay for the spending increases,
governments borrow money by issuing debt securities such as government
bonds and, in the process, accumulate debt. This is referred to as deficit
spending.

24. Monetary Policy vs. Fiscal Policy:
 Monetary policy and fiscal policy refer to the two most widely recognized tools
used to influence a nation's economic activity.
 Both monetary and fiscal policy are tools a government can access to support
and stimulate the economy.
 Monetary policy addresses interest rates and the supply of money in circulation,
and it is generally managed by a central bank.
 Fiscal policy addresses taxation and government spending, and it is generally
determined by legislation.
 Monetary policy and fiscal policy together have great influence over a nation's
economy, its businesses, and its consumers.

25. THANK YOU
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