study in economy subject

1. Inflation
Presented By :Dudhat kenal S.
STD: IMBA-3
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2. Introduction
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3. DEFINITION
 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.
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4. Types of Inflation
 Creeping Inflation
 Walking or trotting Inflation
 Running Inflation
 Galloping Inflation
 Hyper Inflation
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5. Theories and Causes of Inflation
 The main cause of inflation is the increase in the
demand of goods and services and at the same time
decrease in the supply of goods and services.
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6. 1)Demand pull inflation(ex: petrol)
2)Cost push inflation(ex: cement)
3)Over- Expansion of Money Supply
4)Increase in Population
5)Expansion of Bank Credit
6)Black Money
7)Poor Performance of Farm Sector
Causes of inflation
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7. Effects of inflation
 Debtors
 Entrepreneurs
 Farmers
 Upper income groups
 Creditors
 Fixed income groups
 Consumers
 Middle and lower
income groups
BENEFITS LOSES
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8. Effects of inflation
 Investment
 Interest rates
 Exchange rates
 Unemployment
 Stocks
 Decrease in the purchasing power
 Change the allocation of income
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9. Economic Impact of Inflation
 There is a wide spread impact of inflation on the
economies world over. The effect of inflation is felt
on distribution of income and wealth and on
production.
 Effect of Inflation on the Distribution of Income
and Wealth:
 The consumers stand at the loosing end, while the
producers having old inventories may gain from the
inflation.
 People with fixed income group are the worst
sufferers of inflation.
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10.  Inflation also results in black marketing. Sellers may
stock up the goods to be sold in the future,
anticipating further price rise.
 Inflation also discourages entrepreneurs in investing
as the risk involved in the future production would be
very high.
 Inflation also affects the pattern of production, as the
shift in production pattern takes place from consumer
goods to luxury goods.
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11.  Inflation is often measured either in terms of
Wholesale Price Index or in terms of Consumer
Price Index.
 Wholesale Price Index(WPI) :
 The Wholesale Price Index is an indicator designed to
measure the changes in the price levels of
commodities that flow into the wholesale trade
intermediaries.
 The index is a vital guide in economic analysis and
policy formulation,
 It is a basis for price adjustments in business
contracts and projects. It is also intended to serve as
an additional source of information for comparisons
on the international front.
Measuring Inflation
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12. Consumer Price Index (CPI) :
 Consumer price index is specific to particular group
in the population. It shows the cost of living of the
group.
 It is based on the changes in the retail prices of goods
or services. Based on their incomes, consumer spends
money on these particular set of goods and services.
 There are different consumer price indices. Each
index tracks the changes in the retail prices for
different set of consumers. The reason for the
different indices is the differing pattern of consumers.
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13. Measures to control inflation
(1) Monetary 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.
I. Bank rate policy
II. Cash Reserve Ratio (CRR)
III. Open Market Operations
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14. (2) Fiscal Measures
 Fiscal measures to control inflation include taxation,
government expenditure and public borrowings.
 Fiscal measures used to control inflation
include:
I. Increase in Taxes
II. Increase in savings
III. surplus budgets
IV. Higher direct taxes
V. Lower government expenditure
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15. Calculation of inflation:
New price – Old price * 100
Old price
=
For instance:-
Inflation for today’s petrol price.
Old price = 70
New price = 75
= 75-70
70
*
100 =7.14%
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17. Remedies
1. Cash Reserve Ratio increased.
2. Control over Price of Petrol and Diesel.
3. Decreased import tariff.
4. Tax increase
5. Cement price control.
6. Import duty on non-agricultural products was
brought down to 10% from 12.5%
7. Allowed appreciating the Rupee.
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19. conclusion
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