This document discusses the causes, measures, and effects of inflation. It defines inflation as a sustained increase in price levels over time. Inflation can be caused by factors that increase demand, like rising incomes or government spending, or restrict supply, like shortages or natural disasters. Measures to control inflation include monetary policies that reduce the money supply, fiscal policies like tax increases, and other policies like price controls or rationing. Inflation affects different groups in different ways - it can help debtors but hurt creditors or people on fixed incomes. The Phillips Curve model shows an inverse relationship between unemployment and wage inflation rates.

1. CAUSES , MEASURES AND EFFECTS OF INFLATION

2. Inflation :
An increase in the general level of prices in an economy that is
sustained over a period of time is called inflation.
When demand is more than the supply that may lead to inflation
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. CAUSES OF INFLATION
FACTORS AFFECTING DEMAND
FACTORS AFFECTING SUPPLY

4. Factors affecting demand :
1. Increase in money supply
2. Increase in Disposable Income
3. Increase in Public Expenditure
4. Increase in Consumer Spending
5. Cheap Monetary Policy
(credit induced inflation)
6. Deficit Financing
(deficit induced inflation)
7. Expansion of the Private Sector
8. Black Money
9. Repayment of Public Debt
10.Increase in Exports

5. Factors affecting supply:
1. Shortage of Factors of Production
2. Industrial Disputes
3. Natural Calamities
4. Artificial Scarcities
5. Increase in Exports
6. Lop-sided Production
7. Law of Diminishing Returns
8. International Factors

6. Measures to Control Inflation :
MONETARY
MEASURES
FISCAL MEASURES
OTHER MEASURES

7. Calculation of Inflation:
 Inflation is rate of change in the price level.
 If the price level in the current year is P1 and
in the previous year P0.
 The inflation for the current year is
[(P1 - P0) / P0] x 100

8. MONETARY MEASURES :
Monetary measures aim at reducing money incomes.
1. Credit Control
2. Demonetization of Currency
3. Issue of New Currency

9. Fiscal Measures :
1. Reduction in Unnecessary Expenditure
2. Increase in Taxes
3. Increase in Savings
4. Surplus Budgets
5. Public Debt

10. OTHER MEASURES :
1. To Increase Production
(food, clothing, kerosene, sugar, vegetables ,etc.,)
2. Rational Wage Policy
3. Price Control
(direct control to check inflation)
4. Rationing
5. Conclusion

11. Effects of Inflation :
 Higher Inflation = Higher Interest Rates
 Higher Interest Rates = More Incentive to Save
 More Saving + Less spending = Less Money Circulating
 Less Money Circulating = Slower Economy = Lower Inflation
 Low Inflation = Low Interest rates
 Lower Interest Rates = More Incentive to Spent
 More Spending = More Money Circulating in the Economy
 More Money Circulating = Faster Economy = Higher Inflation

12. Factors Affecting Inflation :
1. Effects on Redistribution of Income and Wealth
2. Debtors and Creditors
3. Salaried Persons
4. Wage Earners
5. Fixed Income Group
6. Equity Holders or Investors
7. Businessman
8. Agriculturists
9. Government
10.Conclusion

13. THE PHILLIPS CURVE :
1. Known after the British economist A.W. Phillips.
2. It expresses an inverse relationship between the rate of
unemployment and the rate of income in money wages.
3. Phillips derived the empirical relationship that when
unemployment is high, the rate of increase in money rate is
low.
4. On the other hand, when unemployment is low the rate of
increase in money wage rate is high.
5. The Second factor which influences this inverse relationship is
the nature of business activity.

14. Phillips Curve:
Percentage change in money
wage rate (W) is given on the
vertical axis with the rate of
unemployment(U) on the
horizontal axis.
The convex curve indicates that
= % Δ in money wages / Δ in
employment.(i.e) money
wage ꜛ, unemployment ꜜ and
vice versa.
In the fig when the money
wage rate is 2 percent, the
unemployment rate is 3 per
cent. But when the wage rate is
high at 4 percent, the
unemployment is low at 2 per
cent.

15. Continue:
 Thus there is a trade off between the rate of change in money
wage and the rate of unemployment.
 This means that when the wage rate is high the
unemployment rate is low and vice versa.
 It is to be noted that PC is the “conventional” or original
downward sloping Phillips curve which shows a stable and
inverse relation between the rate of unemployment and the
rate of changes in wages.