Presentation on Inflation Presented by: Navjot Bhogal 11010752
Contents• Introduction• Definitions• Causes of inflation• Effects of inflation• Types of inflation• Inflation rate• Controlling inflation• Conclusion
Meaning of inflation• In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services.
Definitions of inflation• According to Websters “An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.• According to Prof. Samuelson “inflation occurs when general level of prices & cost are rising”.
Causes of inflation• Demand-pull inflation• Cost-push inflation• Built-in inflation
Effects of inflation• Investment• Interest rates• Exchange rates• Unemployment• Stocks• Decrease in the purchasing power• Change the allocation of income
Types of inflation1. On the basis of the degree of the govt control• Open inflation• Suppressed inflation
2. on the basis of political conditions War-time inflation Peace time inflation
3. On the basis of scope• Sectoral inflation• Comprehensive inflation
Inflation rate India Inflation Rate• The inflation rate in India was last reported at 8.8 percent in February of 2012.• From 1969 until 2010, the average inflation rate in India was 7.99 percent reaching an historical high of 34.68 percent in September of 1974 and a record low of -11.31 percent in May of 1976.
Controlling inflation There are broadly two ways of controlling inflation in an economy:• 1). Monetary measures 2). Fiscal measuresMonetary Measures• The most important and commonly used method to control inflation is monetary policy of the Central Bank. Most central banks use high interest rates as the traditional way to fight or prevent inflation.
Monetary measures used to control inflationinclude:(i) bank rate policy(ii) CRR(iii) open market operations
II). Fiscal Measures Fiscal measures to control inflation include taxation, government expenditure and public borrowings.
Fiscal measures used to controlinflation include:(i)Increase in Taxes(ii) Increase in savings(iii) surplus budgets
conclusionIn reality, low inflation rate and an upwardeconomic growth is never possible.Nevertheless, low inflation rate means sloweconomic growth. Whenever, money is inexcess, there is bidding by the consumers dueto which the cost of goods escalate.