ASSIGNEMENT - 2 MACRO ECONOMICS Submitted to Prof. RuchikaBansal Submitted by SIVA SHANMUGA PRIYA N S 2011012Indus World School of Business Date:Greater Noida 22/02/2012
Inflation Graph & InterpretationA continuous rise in the prices of goods or commodities over a period of timeis called inflation. The chart is plotted below. 12.0% Inflation Graph in india 10.0% 8.0% 6.0% Series1 4.0% 2.0% 0.0% Janua… Janua… Janua… Janua… Janua… Janua… Janua… Octo… Octo… Octo… Octo… Octo… Octo… Octo… April April April April April April April July July July July July July July -2.0%There are several internal and external factors for this, a) An increase in the money circulation leads to increased purchasing power that leads to increased demand, thereby prices will increase. b) In some cases the non-availability of some goods leads to increase in their price. That increase in demand might also be a result of reduced interest rates, or a cut in tax rates. c) When the cost of production rises that will result in the increased cost of the commodity. Reasons for cost of production rise can be - Rising labor costs
- Monopoly or oligopoly firms in market for certain goods - Raises prices, cost of imported raw material rises due to exchange rate changes. - External factors, such as natural calamities. - Increase in indirect taxes.In 2005 April to 2007 April there was an inflation rate increased from 2.7% toaround 6%. There were several reasons for that. The boom in the IT industrywas an important reason for that. It gave the consumers purchasing powerbecause of high salary packages.Consumer’s purchasing power had increased and the price of commoditiesalso increased.But after April 2007 there was decline in therate of inflation due to low pricesof vegetables, poultry chicken, fruits, and a few items. Some products that hadbecome cheaper were imported basic pig iron edible oil, methanol, bakeryproducts, and foundry pig iron. A rising trend had been seen in prices of milk,tea, and other few.Then in 2008 the period of recession had started and the prices had slightlystarted increasing as the prices were already going up for past few years,those who had purchasing power were able to pay a higher price.But after October 2008 and whole 2009 and till April 2010 the recessionperiod has strongly affected India. It resulted in 1. Loss of jobs, 2. Declining purchasing power 3. Less demand in market 4. People stop buying luxury and semi luxury goods. This resulted in fall of commodity prices.Then after April 2010 again industries tried to pull them up from the effect ofrecession and they started blooming and the inflation starts increasing.
Unemployment Graph & InterpretationThe Unemployment factor is having an important role in the economicgrowth.From 2006 to 2008 the unemployment rate was going down, that impliespeople are getting employed in this period. The reason for this is booming ofIT industries and related telecom industries, e- commerce introduction to themarket and other big players started expanding their businesses to variousother sectors and product line.From 2008 to 2010 we could find the high rate of unemployment, due torecession in the world economy. It resulted in people started losing their jobsand they were not able to find new jobs quickly. Till 2011 it remains same,that implicitly indicates that the recession has finished almost but the aftermath effect of that still continues in the economy. 10 Unemployment in India 9.5 9 8.5 Series1 8 7.5 7 2006 2008 2010 2011
Inflation with UnemploymentIf we start analyzing by combining both inflation and unemployment, wecould get an idea of the interdependency among them.2006 to 2008 - Unemployment rate was decreasing – Inflation rate wasincreasing.That implies people are getting employed in this period because of boomingIT/ ITES industries, related telecom industries, e- commerce introduction tothe market and other big players started expanding their businesses tovarious other sectors and product line. So the increased employment led tomoney circulation in market through the people’s salary and increasedpurchasing power and the commodities rate started increasing.2008 to 2010 Unemployment rate was increasing – Inflation rate wasdecreasing.Due to recession in the world economy people in all industry started losingtheir jobs and they were not able to find new jobs quickly. It led to decreasedpurchasing power of them and the prices started falling down.After 2011 Unemployment rate was constant – Inflation rate is almostconstant with slight variationThe unemployment level remains same that leads almost same inflation ratewith slight variation. That indicates that the recession has still having its effectin the economy.We could understand from this, that the unemployment and inflation almosthas inverse relationship.