Inflation in early 20th century Germany caused prices to rise so rapidly that savings were quickly erased. Inflation is generally defined as a sustained rise in the general price level caused by an increase in the money supply. It can have varying effects on different groups in society such as harming fixed-income earners but potentially benefiting debtors. Countries use monetary, fiscal and other measures to control inflation and stabilize prices.
The document discusses different types of investment. Autonomous investment does not change with income levels and is focused on infrastructure like roads and public projects. Induced investment is impacted by changes in income levels and includes investments in fixed capital and inventories. The key determinants of investment are the marginal efficiency of capital, technological progress, demand forecasts, income levels, population growth, government policy, and political stability. Higher values of these factors will lead to more investment.
In Macroeconomics Income and Employment are interchangeable terms, since in the short-run National income depends on the total volume of employment or economic activity in the country. As income and employment are synonymous the employment theory is also called income theory.
It should be clear to readers that the classical economists did not formulate any specific theory of employment as such. They only laid down certain postulates which subsequently developed as a theory.
The Phillips curve describes an inverse relationship between unemployment and inflation, such that lower unemployment is associated with higher inflation. While observed to be stable in the short-run, it does not hold in the long-run. The document discusses the origins of the Phillips curve from William Phillips' 1958 paper and subsequent modifications by economists like Friedman and Phelps who argued it does not reflect long-run economic realities. It also examines shifts to the Phillips curve from supply shocks and how the relationship between unemployment and inflation is now understood with incorporation of inflation expectations.
try the ppt of Tata Mutual Fund on deflation which is posted on slideshare try it its and easy to understand this ppt is also mix of that ppt and 2 more
This document provides an overview of classical and Keynesian theories of income and employment. It discusses key differences between the two theories, including how they determine full employment. The classical theory believes full employment is the normal state, while Keynes argued unemployment can persist due to insufficient aggregate demand. The document then explains Keynesian concepts like aggregate demand, consumption, investment and their relationship to national income and output. It also outlines Keynes' model and equilibrium conditions between markets.
Inflation is defined as a sustained increase in the general price level in an economy over a period of time. It can be caused by demand-pull factors like excess money supply or cost-push factors like increases in production costs. There are three main types of inflation - creeping inflation (under 5%), running inflation (8-10%) and hyperinflation (double or triple digit price increases). Governments use monetary policy like increasing interest rates and fiscal policy like increasing taxes or reducing spending to control inflation. Both demand-pull and cost-push inflation impact the economy by hurting consumers and fixed income groups.
This document contains information about group members for a project including their names and student IDs. It then discusses concepts related to aggregate demand including:
1. The relationship between money supply, velocity, prices, and output.
2. Differences between aggregate supply in the short run vs long run and how shifts in aggregate demand affect output vs prices.
3. How shocks to velocity can shift the aggregate demand curve and impact equilibrium output and prices.
This document discusses inflation, including its definition, types, causes, impacts, and measurement. It defines inflation as a persistent increase in general price levels over time. There are different types and speeds of inflation such as creeping, walking, running, and hyper inflation. Inflation is caused by demand-pull factors like too much money chasing too few goods, and cost-push factors like increases in wages, profits, import prices, and taxes. Impacts of inflation include a redistribution of income away from fixed income groups, impacts on production, savings, government finances, and exports/imports. Inflation is measured using price indices like the wholesale price index and consumer price index, which track the prices of baskets of goods
The document discusses different types of investment. Autonomous investment does not change with income levels and is focused on infrastructure like roads and public projects. Induced investment is impacted by changes in income levels and includes investments in fixed capital and inventories. The key determinants of investment are the marginal efficiency of capital, technological progress, demand forecasts, income levels, population growth, government policy, and political stability. Higher values of these factors will lead to more investment.
In Macroeconomics Income and Employment are interchangeable terms, since in the short-run National income depends on the total volume of employment or economic activity in the country. As income and employment are synonymous the employment theory is also called income theory.
It should be clear to readers that the classical economists did not formulate any specific theory of employment as such. They only laid down certain postulates which subsequently developed as a theory.
The Phillips curve describes an inverse relationship between unemployment and inflation, such that lower unemployment is associated with higher inflation. While observed to be stable in the short-run, it does not hold in the long-run. The document discusses the origins of the Phillips curve from William Phillips' 1958 paper and subsequent modifications by economists like Friedman and Phelps who argued it does not reflect long-run economic realities. It also examines shifts to the Phillips curve from supply shocks and how the relationship between unemployment and inflation is now understood with incorporation of inflation expectations.
try the ppt of Tata Mutual Fund on deflation which is posted on slideshare try it its and easy to understand this ppt is also mix of that ppt and 2 more
This document provides an overview of classical and Keynesian theories of income and employment. It discusses key differences between the two theories, including how they determine full employment. The classical theory believes full employment is the normal state, while Keynes argued unemployment can persist due to insufficient aggregate demand. The document then explains Keynesian concepts like aggregate demand, consumption, investment and their relationship to national income and output. It also outlines Keynes' model and equilibrium conditions between markets.
Inflation is defined as a sustained increase in the general price level in an economy over a period of time. It can be caused by demand-pull factors like excess money supply or cost-push factors like increases in production costs. There are three main types of inflation - creeping inflation (under 5%), running inflation (8-10%) and hyperinflation (double or triple digit price increases). Governments use monetary policy like increasing interest rates and fiscal policy like increasing taxes or reducing spending to control inflation. Both demand-pull and cost-push inflation impact the economy by hurting consumers and fixed income groups.
This document contains information about group members for a project including their names and student IDs. It then discusses concepts related to aggregate demand including:
1. The relationship between money supply, velocity, prices, and output.
2. Differences between aggregate supply in the short run vs long run and how shifts in aggregate demand affect output vs prices.
3. How shocks to velocity can shift the aggregate demand curve and impact equilibrium output and prices.
This document discusses inflation, including its definition, types, causes, impacts, and measurement. It defines inflation as a persistent increase in general price levels over time. There are different types and speeds of inflation such as creeping, walking, running, and hyper inflation. Inflation is caused by demand-pull factors like too much money chasing too few goods, and cost-push factors like increases in wages, profits, import prices, and taxes. Impacts of inflation include a redistribution of income away from fixed income groups, impacts on production, savings, government finances, and exports/imports. Inflation is measured using price indices like the wholesale price index and consumer price index, which track the prices of baskets of goods
INFLATION : NATURE,EFFECT AND CONTROL sreekanthskt
Inflation is defined as a sustained increase in the general price level of goods and services in an economy over time. It can be caused by factors on both the demand side, such as an increase in money supply, and the supply side, such as a rise in production costs. Inflation is measured by indexes that track changes in consumer prices (CPI) or wholesale prices (WPI) over time. There are different views on the causes and solutions for inflation, with Keynesians focusing on demand management and monetarists emphasizing the role of money supply.
This document provides an overview of inflation presented by Praveen Suresh. It defines inflation as a rise in the general price level and discusses its causes such as increases in demand or decreases in supply. The effects of inflation like rising costs of living are explained. Different types of inflation like demand-pull and cost-push are covered. Examples of major historical inflations and the high rates seen in countries like Zimbabwe and Germany are given. Methods to control inflation including monetary and fiscal measures are outlined. The document also discusses how inflation is calculated in India using the Wholesale Price Index and current inflation rates and food price rises in the country. It raises issues with solely relying on WPI for measuring consumer inflation.
The classical model of employment is based on the assumptions of full employment, laissez-faire, a self-adjusting economy, a barter system, and a closed economy. It is based on Say's law that supply creates its own demand. The model assumes wages and prices are flexible and will adjust to achieve full employment equilibrium in the labor market. If unemployment occurs due to a fall in demand, a general wage cut will increase demand for labor and eliminate unemployment, restoring full employment.
Keynesian theory holds that aggregate demand drives output and employment. If aggregate demand increases, output will also rise as long as there is excess production capacity. Monetary and fiscal policy can be used to boost aggregate demand and increase output towards full employment. However, fiscal policy expansion may be partly offset or "crowded out" if it raises interest rates and reduces private investment. The effectiveness of fiscal and monetary policy mixes depends on the slopes of the IS and LM curves.
The Liquidity Preference Theory suggests that investors demand higher interest rates for longer term investments because cash is considered the most liquid asset. There are three motives for demanding money: transaction motives for daily needs, precautionary motives for unexpected events, and speculative motives based on interest rate fluctuations. The total demand for money is the sum of these three motives and is determined by income and interest rates. Interest rates are set by the point where the total demand for money equals the fixed money supply as determined by the central bank, with the demand curve sloping downward and the supply curve being vertical.
The document discusses the nature and phases of trade cycles. Trade cycles refer to fluctuations in economic activity over months or years. There are four phases - expansion/boom, recession, depression/contraction, and recovery/revival. The expansion phase sees high investment, output, employment and prices. The recession phase brings falling income, output, prices and rising unemployment. Depression is characterized by mass unemployment, low output and prices. Recovery occurs when investment and output begin rising again. Governments use monetary and fiscal policy to reduce the impact of trade cycle fluctuations.
Classical economists believed that full employment was the normal state of the economy and any deviation from it was abnormal. They assumed a closed economy with homogeneous goods, laissez-faire policies, and a barter system. According to Say's law, supply creates its own demand so overproduction is not possible. The classical theory held that output and employment are determined by production functions and the demand and supply of labor, with diminishing marginal returns. Labor market equilibrium occurs at the wage rate where demand and supply of labor intersect.
This document provides an overview of post-Keynesian economics. It defines post-Keynesian economics, outlines some of its key characteristics such as its focus on effective demand and historical dynamics. It also describes some of the different strands within post-Keynesian theory, including Michal Kalecki's emphasis on imperfect competition and class division. Additionally, it summarizes theories around post-Keynesian income distribution in corporate economies developed by Robinson, Kaldor and Pasinetti, and post-Keynesian employment analysis based on the principle of effective demand determining labor-hire decisions.
Demand-pull inflation occurs when an increase in aggregate demand causes the price level to rise. This initial increase in aggregate demand can be triggered by factors like interest rate cuts, money supply increases, tax cuts, or rising government spending. As prices rise, wages also increase which shifts the supply curve back left, maintaining full employment but at a higher overall price level. If the increases in aggregate demand are sustained over time, such as through continual money supply growth, it can lead to an ongoing inflationary spiral.
The Philip curve shows an inverse relationship between the rate of unemployment and the rate of change in money wages in the short run. Friedman argued that in the long run, there is no tradeoff between inflation and unemployment - the Philip curve becomes vertical at the natural rate of unemployment, which is the rate where expected and actual inflation are equal. Temporary reductions in unemployment below the natural rate are only possible if inflation rises above expectations, but eventually expectations will adjust and unemployment will return to the natural rate, even as inflation accelerates.
The document discusses various types and measures to control inflation. It defines inflation as a continuous rise in price levels and identifies different types including open inflation where no control measures are taken, suppressed inflation where prices are controlled, wartime inflation to fund war expenses, and creeping inflation where prices rise slowly. Measures to control inflation include monetary policies like controlling money supply and credit, and fiscal policies like decreasing expenditures, increasing taxes, and encouraging production, savings, and proper investment. The document concludes with an example of hyperinflation in Zimbabwe in 2008 that reached 355,000% and severely damaged the economy.
Keynesian theory rejects Say's law that supply creates its own demand. It argues that the level of income and employment is determined by aggregate demand and supply in the short run, and that equilibrium could be below full employment. The key determinants of income are consumption, investment, and saving. The effective demand curve shows equilibrium between aggregate demand and supply. Keynes believed full employment could be achieved by increasing aggregate demand through policies like government spending.
This document provides an overview of key concepts in industrial economics including:
1. It discusses micro and macro economics, and defines industrial economics as dealing with economic problems of firms and industries.
2. Some key concepts covered include production functions, costs, revenues, and market structures like monopoly and price discrimination.
3. Laws of production like returns to scale and variable proportions are explained, as well as cost concepts like total, average, and marginal costs.
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
Mohammad Abadullah
Dilruba Jahan Popi
Rabiul Islam
Effat Ara Saima
MD. Rajib Mojumder (Captain)
It includes:
CLASSICAL THEORY OF EMPLOYMENT,
SAY’S LAW OF MARKET,
Determination of Employment and Output in the Classical Model,
Keynesian Theory of Employment,
Principle of Effective Demand, and on many more topics...
This document discusses various types and causes of inflation. It outlines six main causes of inflation: demand-pull, cost-push, profit-induced, budgetary, monetary, and multi-causal inflation. It also discusses inflation based on rates (anticipated vs unanticipated), degrees (creeping, walking, running, hyper), and levels of control (open vs suppressed; partial vs full). Deflation is also briefly covered, defined as a decrease in general price levels that can exacerbate recessions.
The document discusses Keynes's principle of effective demand which determines the level of employment in an economy. It explains that employment depends on effective demand, which is the level where aggregate demand and supply are equal. Unemployment results from a deficiency in effective demand. The level of employment is determined by the intersection of the aggregate demand and supply curves. Effective demand can be increased by raising aggregate demand through higher consumption or investment expenditures.
1) Statement to Quantity Theory of Money
2) Graph illustration and Pictorial description of QTM
3) Different Approaches to QTM
4) Fisher's Transaction Approach Description
5) Assumptions of Fisher's Transaction Approach
6) Conclusion
This document discusses various causes of inflation including demand-pull inflation and cost-push inflation. Demand-pull inflation occurs when demand increases and outstrips supply, forcing prices to rise. Cost-push inflation is caused by factors that increase the costs of production like rising wages, taxes, material costs and profit margins which are then passed onto consumers in the form of higher prices. Some examples provided include the 1970s OPEC oil embargo and 2012 Pakistan floods which constrained supply and led to price increases. Black money, disposable income, non-productive spending and population growth can also increase demand and cause inflation.
This document discusses inflation and its effects. It defines inflation as a sustained upward trend in general price levels rather than just a few goods. Inflation reduces purchasing power. It affects people differently depending on whether their incomes can keep up. Those with fixed incomes like pensioners lose out. Businessmen may gain from inflation. The document outlines monetary and fiscal policy tools to control inflation like raising interest rates and reducing spending. Price controls can temporarily stop price rises but not control inflation long term.
This document discusses the effects of inflation on different groups in society. It states that inflation results in a redistribution of income and wealth from those with fixed incomes, like salaried workers, pensioners, and bondholders, to those with flexible incomes like businessmen, stockholders, and debtors. Specifically, it outlines how inflation hurts creditors and helps debtors, salaried workers and wage earners may gain or lose depending on wage adjustments, and it benefits businessmen through increased profits and real estate owners as property values rise.
INFLATION : NATURE,EFFECT AND CONTROL sreekanthskt
Inflation is defined as a sustained increase in the general price level of goods and services in an economy over time. It can be caused by factors on both the demand side, such as an increase in money supply, and the supply side, such as a rise in production costs. Inflation is measured by indexes that track changes in consumer prices (CPI) or wholesale prices (WPI) over time. There are different views on the causes and solutions for inflation, with Keynesians focusing on demand management and monetarists emphasizing the role of money supply.
This document provides an overview of inflation presented by Praveen Suresh. It defines inflation as a rise in the general price level and discusses its causes such as increases in demand or decreases in supply. The effects of inflation like rising costs of living are explained. Different types of inflation like demand-pull and cost-push are covered. Examples of major historical inflations and the high rates seen in countries like Zimbabwe and Germany are given. Methods to control inflation including monetary and fiscal measures are outlined. The document also discusses how inflation is calculated in India using the Wholesale Price Index and current inflation rates and food price rises in the country. It raises issues with solely relying on WPI for measuring consumer inflation.
The classical model of employment is based on the assumptions of full employment, laissez-faire, a self-adjusting economy, a barter system, and a closed economy. It is based on Say's law that supply creates its own demand. The model assumes wages and prices are flexible and will adjust to achieve full employment equilibrium in the labor market. If unemployment occurs due to a fall in demand, a general wage cut will increase demand for labor and eliminate unemployment, restoring full employment.
Keynesian theory holds that aggregate demand drives output and employment. If aggregate demand increases, output will also rise as long as there is excess production capacity. Monetary and fiscal policy can be used to boost aggregate demand and increase output towards full employment. However, fiscal policy expansion may be partly offset or "crowded out" if it raises interest rates and reduces private investment. The effectiveness of fiscal and monetary policy mixes depends on the slopes of the IS and LM curves.
The Liquidity Preference Theory suggests that investors demand higher interest rates for longer term investments because cash is considered the most liquid asset. There are three motives for demanding money: transaction motives for daily needs, precautionary motives for unexpected events, and speculative motives based on interest rate fluctuations. The total demand for money is the sum of these three motives and is determined by income and interest rates. Interest rates are set by the point where the total demand for money equals the fixed money supply as determined by the central bank, with the demand curve sloping downward and the supply curve being vertical.
The document discusses the nature and phases of trade cycles. Trade cycles refer to fluctuations in economic activity over months or years. There are four phases - expansion/boom, recession, depression/contraction, and recovery/revival. The expansion phase sees high investment, output, employment and prices. The recession phase brings falling income, output, prices and rising unemployment. Depression is characterized by mass unemployment, low output and prices. Recovery occurs when investment and output begin rising again. Governments use monetary and fiscal policy to reduce the impact of trade cycle fluctuations.
Classical economists believed that full employment was the normal state of the economy and any deviation from it was abnormal. They assumed a closed economy with homogeneous goods, laissez-faire policies, and a barter system. According to Say's law, supply creates its own demand so overproduction is not possible. The classical theory held that output and employment are determined by production functions and the demand and supply of labor, with diminishing marginal returns. Labor market equilibrium occurs at the wage rate where demand and supply of labor intersect.
This document provides an overview of post-Keynesian economics. It defines post-Keynesian economics, outlines some of its key characteristics such as its focus on effective demand and historical dynamics. It also describes some of the different strands within post-Keynesian theory, including Michal Kalecki's emphasis on imperfect competition and class division. Additionally, it summarizes theories around post-Keynesian income distribution in corporate economies developed by Robinson, Kaldor and Pasinetti, and post-Keynesian employment analysis based on the principle of effective demand determining labor-hire decisions.
Demand-pull inflation occurs when an increase in aggregate demand causes the price level to rise. This initial increase in aggregate demand can be triggered by factors like interest rate cuts, money supply increases, tax cuts, or rising government spending. As prices rise, wages also increase which shifts the supply curve back left, maintaining full employment but at a higher overall price level. If the increases in aggregate demand are sustained over time, such as through continual money supply growth, it can lead to an ongoing inflationary spiral.
The Philip curve shows an inverse relationship between the rate of unemployment and the rate of change in money wages in the short run. Friedman argued that in the long run, there is no tradeoff between inflation and unemployment - the Philip curve becomes vertical at the natural rate of unemployment, which is the rate where expected and actual inflation are equal. Temporary reductions in unemployment below the natural rate are only possible if inflation rises above expectations, but eventually expectations will adjust and unemployment will return to the natural rate, even as inflation accelerates.
The document discusses various types and measures to control inflation. It defines inflation as a continuous rise in price levels and identifies different types including open inflation where no control measures are taken, suppressed inflation where prices are controlled, wartime inflation to fund war expenses, and creeping inflation where prices rise slowly. Measures to control inflation include monetary policies like controlling money supply and credit, and fiscal policies like decreasing expenditures, increasing taxes, and encouraging production, savings, and proper investment. The document concludes with an example of hyperinflation in Zimbabwe in 2008 that reached 355,000% and severely damaged the economy.
Keynesian theory rejects Say's law that supply creates its own demand. It argues that the level of income and employment is determined by aggregate demand and supply in the short run, and that equilibrium could be below full employment. The key determinants of income are consumption, investment, and saving. The effective demand curve shows equilibrium between aggregate demand and supply. Keynes believed full employment could be achieved by increasing aggregate demand through policies like government spending.
This document provides an overview of key concepts in industrial economics including:
1. It discusses micro and macro economics, and defines industrial economics as dealing with economic problems of firms and industries.
2. Some key concepts covered include production functions, costs, revenues, and market structures like monopoly and price discrimination.
3. Laws of production like returns to scale and variable proportions are explained, as well as cost concepts like total, average, and marginal costs.
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
Mohammad Abadullah
Dilruba Jahan Popi
Rabiul Islam
Effat Ara Saima
MD. Rajib Mojumder (Captain)
It includes:
CLASSICAL THEORY OF EMPLOYMENT,
SAY’S LAW OF MARKET,
Determination of Employment and Output in the Classical Model,
Keynesian Theory of Employment,
Principle of Effective Demand, and on many more topics...
This document discusses various types and causes of inflation. It outlines six main causes of inflation: demand-pull, cost-push, profit-induced, budgetary, monetary, and multi-causal inflation. It also discusses inflation based on rates (anticipated vs unanticipated), degrees (creeping, walking, running, hyper), and levels of control (open vs suppressed; partial vs full). Deflation is also briefly covered, defined as a decrease in general price levels that can exacerbate recessions.
The document discusses Keynes's principle of effective demand which determines the level of employment in an economy. It explains that employment depends on effective demand, which is the level where aggregate demand and supply are equal. Unemployment results from a deficiency in effective demand. The level of employment is determined by the intersection of the aggregate demand and supply curves. Effective demand can be increased by raising aggregate demand through higher consumption or investment expenditures.
1) Statement to Quantity Theory of Money
2) Graph illustration and Pictorial description of QTM
3) Different Approaches to QTM
4) Fisher's Transaction Approach Description
5) Assumptions of Fisher's Transaction Approach
6) Conclusion
This document discusses various causes of inflation including demand-pull inflation and cost-push inflation. Demand-pull inflation occurs when demand increases and outstrips supply, forcing prices to rise. Cost-push inflation is caused by factors that increase the costs of production like rising wages, taxes, material costs and profit margins which are then passed onto consumers in the form of higher prices. Some examples provided include the 1970s OPEC oil embargo and 2012 Pakistan floods which constrained supply and led to price increases. Black money, disposable income, non-productive spending and population growth can also increase demand and cause inflation.
This document discusses inflation and its effects. It defines inflation as a sustained upward trend in general price levels rather than just a few goods. Inflation reduces purchasing power. It affects people differently depending on whether their incomes can keep up. Those with fixed incomes like pensioners lose out. Businessmen may gain from inflation. The document outlines monetary and fiscal policy tools to control inflation like raising interest rates and reducing spending. Price controls can temporarily stop price rises but not control inflation long term.
This document discusses the effects of inflation on different groups in society. It states that inflation results in a redistribution of income and wealth from those with fixed incomes, like salaried workers, pensioners, and bondholders, to those with flexible incomes like businessmen, stockholders, and debtors. Specifically, it outlines how inflation hurts creditors and helps debtors, salaried workers and wage earners may gain or lose depending on wage adjustments, and it benefits businessmen through increased profits and real estate owners as property values rise.
This document discusses causes, effects, and controls of inflation. It defines inflation as too much money chasing too few goods. There are three main types of inflation - demand-pull, cost-push, and built-in inflation. Demand-pull inflation occurs due to increased government and private spending. Cost-push inflation originates from rises in production costs. Built-in inflation is caused by adaptive expectations. Effects of inflation include increases in the cost of living, income inequality, and decreases in savings. Controls of inflation involve increasing interest rates, reducing the money supply, changing taxation and import/export duties, and strengthening the local currency. To effectively control inflation, a government must adopt simultaneous monetary, fiscal and other measures.
This document provides an overview of inflation including:
- Definitions of inflation and its causes such as an excessive growth of the money supply.
- Types of inflation categorized by coverage, time of occurrence, government reaction, rising price levels, causes, and expectations.
- Positive effects of inflation include increased tax revenues for governments.
- Negative effects include uncertainty that discourages investment and international trade imbalances.
- Methods for controlling inflation focus on reducing aggregate demand through monetary and fiscal policy measures.
Inflation is defined as a general rise in prices for goods and services over time which results in a loss of purchasing power of a currency. Central banks aim to keep inflation within a target range to maintain economic stability. There are different types of inflation such as hyperinflation, which is a rapid rise in prices over 50% per month, and stagflation, which is stagnant economic growth combined with price inflation. Inflation can be caused by demand-pull factors like an increase in the money supply shifting aggregate demand curves out, or cost-push factors like increases in production costs shifting aggregate supply curves in. Effects of inflation include a redistribution of income and wealth between debtors and creditors, and losses for bond
The document discusses inflation, defining it as a rise in prices that decreases purchasing power over time. It outlines different types of inflation including demand-pull, cost-push, open, repressed, hyper, creeping, moderate, true, and semi-inflation. Causes of inflation include increasing the money supply through printing money, devaluing currency, and creating bank reserves. Inflation can be controlled through monetary policy like interest rates and required reserves as well as fiscal policy like taxation. While some assets may increase in value with inflation, it overall imposes costs and distorts prices.
5. concept of inflation & stagflationsantumane
This document discusses the concepts of inflation and stagflation. It defines inflation as a general rise in prices or a fall in the value of money. There are various types of inflation classified based on rate, government intervention, coverage, time period, and causes such as credit, scarcity, deficit, currency, profit, tax, wage, foreign trade, and stagflation. Stagflation refers to high inflation combined with high unemployment, which India experienced from 1991-1994 due to various economic factors. The document also outlines the causes, effects, and measures to control inflation through monetary, fiscal, and other policies. Deflation is defined as a sustained fall in the general price level that occurs when inflation becomes negative
monetary and its eloborateds policy.pptxrajesshs31r
Monetary policy is used by central banks to regulate money supply and interest rates to achieve macroeconomic goals like price stability and growth. It works by expanding money supply and lowering rates to boost aggregate demand during recessions, and contracting money supply or raising rates to curb spending and inflation during booms. The Reserve Bank of India implements monetary policy through tools that influence money supply, credit conditions, and interest rates in order to maintain price stability and economic growth.
Monetary policy determines the supply and availability of money in an economy in order to achieve objectives like economic growth and price stability. It is implemented by central banks and involves managing interest rates and the money supply. When the economy is slowing, monetary policy aims to increase the money supply and lower rates to boost aggregate demand. When inflation is high, it seeks to tighten the money supply or raise rates to reduce aggregate spending. The goals are macroeconomic stability with low unemployment and inflation alongside steady growth.
1) Inflation refers to a general rise in prices for goods and services over time which decreases the purchasing power of currency. The two main causes of inflation are demand-pull, when demand exceeds supply, and cost-push, when input costs rise.
2) Remedies for inflation include contractionary monetary policy which raises interest rates, fiscal policy like increasing direct taxes and decreasing spending, and supply management measures. Inflation is measured using indices like WPI, CPI, and GDP deflator.
3) Deflation is a general decrease in prices over time which increases purchasing power. It can be caused by structural changes, increased productivity, or a decrease in currency supply. Deflation lowers
Inflation reduces the value of money over time. High inflation negatively impacts the stock market and economy. When inflation is high, stock prices tend to decrease as company expenses rise and profits fall. Investors also demand higher returns during periods of high inflation. However, moderate inflation of 3-5% is generally considered healthy for economic growth. To beat inflation, investors should emphasize growth equity investments that pay dividends and avoid long-term fixed income. Commodities, real estate, and inflation-indexed bonds also tend to perform well during inflationary periods. Maintaining a balanced investment portfolio is key to mitigating inflation's effects.
1. Inflation means a long-term continuous rise in the general price level of a country, which is calculated as a weighted average of prices of various goods and services, with more important items receiving higher weights.
2. India uses 435 commodities grouped into primary articles, fuel and power, and manufactured products to calculate its general price level. Inflation data is reported weekly by MOSPI.
3. Inflation rate is calculated as the percentage change in price level from the base period to the final period. Items with higher weights have a greater impact on the inflation rate.
Inflation refers to a sustained increase in the general price level of goods and services in an economy. It results from an imbalance between the supply and demand for money. When there is too much money supply, prices rise as each currency unit buys fewer goods. This leads to a reduction in purchasing power. Deflation is the opposite of inflation, where the general price level declines. Hyperinflation refers to an extreme case where prices increase rapidly in a short period of time, potentially causing an economic breakdown. Stagflation is when high unemployment and economic stagnation occur alongside inflation.
This document was made as an assignment for the course of Economics.
This document was made by the help of several books and online portals. Thanks to the author of that resources.
Monetary policy involves regulating money supply and interest rates to achieve macroeconomic stability goals like low inflation and unemployment. The central bank determines monetary policy using tools that expand or contract the money supply. Expanding money supply and lowering rates stimulates demand during recessions, while contracting money and raising rates curbs demand to control inflation. Measuring indicators like money supply, inflation rates, and interest rates helps central banks determine appropriate monetary policy decisions.
The document discusses various topics related to inflation including:
1. Inflation is defined as a rise in general price levels reported as a rate of change which reduces the purchasing power of money.
2. Inflation can be caused by increases in the money supply, reductions in goods available, decreases in demand for money, and increases in demand for goods.
3. Effects of inflation include a reduction in purchasing power of currency, changes to spending habits, speculation, and impacts to income distribution between lenders and borrowers.
This document defines inflation and unemployment, lists their causes and consequences. It discusses how inflation is caused by increases in money supply, national debt, and demand or costs. High inflation increases uncertainty, inequality, and interest rates. Deflation occurs when prices decrease due to money supply or investment reductions. Unemployment results from a lack of job opportunities and is measured by unemployment rates. It can be voluntary or involuntary and has individual effects like health issues. The Phillips curve models the inverse relationship between unemployment and inflation.
This document discusses the differences between microeconomics and macroeconomics. Microeconomics examines specific markets and how individual supply and demand affects prices. Macroeconomics looks at overall economic trends and how monetary policy impacts the whole economy. The document then provides details on inflation, including causes like demand-pull and cost-push inflation. Effects of inflation include reduced purchasing power and discouragement of savings. Ways to combat inflation include fiscal and monetary policies at the national level and conservative spending at the individual level. The document also briefly discusses deflation.
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.
Inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time.
Tariffs are taxes imposed on imported or exported goods. There are several types of tariffs including specific tariffs (fixed amount per unit), ad valorem tariffs (fixed percentage of value), and compound tariffs (combination of specific and ad valorem). Tariffs can be used for revenue generation or protecting domestic industries. Quotas limit the quantity of goods that can be imported, and include tariff quotas, unilateral quotas negotiated bilaterally. Import licensing systems administer quota regulations by requiring licenses to import goods.
The document discusses monetary policy and fiscal policy. It defines monetary policy as related to the supply and cost of money in an economy to achieve objectives like economic growth and price stability. The central bank controls money supply using tools like bank rates, open market operations, and reserve ratios. Fiscal policy relates to government revenue and spending through taxation, expenditures, and borrowing. Both policies aim to achieve development through mobilizing resources, maintaining stability, and stimulating employment and growth.
The document discusses various types of government budgets. It defines a government budget as an annual financial statement showing estimates of expected revenue and expenditure during a fiscal year. The main elements of a budget are that it pertains to a fixed period (usually one year), and plans expenditure and sources of finance to achieve government objectives.
The types of budgets discussed include the Union Budget (central government), State Budgets, Plan Budget, Non-Plan Budget, Performance Budget, Supplementary Budget, Vote on Account Budget, and Zero Base Budget. Components of the budget discussed are the Revenue Budget and its revenue receipts (tax revenue like income tax, and non-tax revenue from fees, profits, etc.) and revenue expenditure which is for routine
This document discusses several methods used to measure economic development. It describes common metrics like gross national product (GNP) and per capita income, as well as indexes that account for other factors like quality of life, education, health and gender equality. These include the Physical Quality of Life Index, Human Development Index, Capability Approach, and Gender Related Development Index. No single measure can fully capture a country's economic development, so economists consider multiple criteria to evaluate progress.
Walt Rostow proposed a model of economic growth consisting of 5 stages: 1) Traditional society, 2) Preconditions for take-off, 3) Take-off, 4) Drive to maturity, 5) Age of high mass consumption. The preconditions stage involves creating conditions for sustained growth like infrastructure, education, and trade. The take-off stage involves rapid industrialization through high investment rates. During the drive to maturity stage, new technologies are widely adopted and economies can withstand shocks. Finally, in the age of high mass consumption, societies focus on consumption and welfare.
German economist H.H. Gossen developed the law of diminishing marginal utility, which was later popularized by Alfred Marshall. The law states that as consumption of a good increases incrementally, the additional utility or satisfaction from each additional unit decreases. In other words, people derive less satisfaction from each subsequent unit of consumption as they consume more of that good. The law assumes tastes and preferences remain constant, income remains fixed, units are identical, and consumption is continuous.
Demand refers to a customer's desire and willingness to purchase a product, backed by their ability to pay for it. Willingness to purchase is influenced by factors like brand name, product quality, price sensitivity, and promotions. The ability to purchase depends on a customer's capacity to pay in terms of money. The key determinants of demand include the price of the commodity, prices of related and substitute goods, customer tastes and preferences, income levels, demonstration effects, and sales promotions.
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby...Donc Test
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting, 8th Canadian Edition by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Ebook Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Pdf Solution Manual For Financial Accounting 8th Canadian Edition Pdf Download Stuvia Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Financial Accounting 8th Canadian Edition Ebook Download Stuvia Financial Accounting 8th Canadian Edition Pdf Financial Accounting 8th Canadian Edition Pdf Download Stuvia
The Universal Account Number (UAN) by EPFO centralizes multiple PF accounts, simplifying management for Indian employees. It streamlines PF transfers, withdrawals, and KYC updates, providing transparency and reducing employer dependency. Despite challenges like digital literacy and internet access, UAN is vital for financial empowerment and efficient provident fund management in today's digital age.
Independent Study - College of Wooster Research (2023-2024) FDI, Culture, Glo...AntoniaOwensDetwiler
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Vicinity Jobs’ data includes more than three million 2023 OJPs and thousands of skills. Most skills appear in less than 0.02% of job postings, so most postings rely on a small subset of commonly used terms, like teamwork.
Laura Adkins-Hackett, Economist, LMIC, and Sukriti Trehan, Data Scientist, LMIC, presented their research exploring trends in the skills listed in OJPs to develop a deeper understanding of in-demand skills. This research project uses pointwise mutual information and other methods to extract more information about common skills from the relationships between skills, occupations and regions.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Abhay Bhutada, the Managing Director of Poonawalla Fincorp Limited, is an accomplished leader with over 15 years of experience in commercial and retail lending. A Qualified Chartered Accountant, he has been pivotal in leveraging technology to enhance financial services. Starting his career at Bank of India, he later founded TAB Capital Limited and co-founded Poonawalla Finance Private Limited, emphasizing digital lending. Under his leadership, Poonawalla Fincorp achieved a 'AAA' credit rating, integrating acquisitions and emphasizing corporate governance. Actively involved in industry forums and CSR initiatives, Abhay has been recognized with awards like "Young Entrepreneur of India 2017" and "40 under 40 Most Influential Leader for 2020-21." Personally, he values mindfulness, enjoys gardening, yoga, and sees every day as an opportunity for growth and improvement.
[4:55 p.m.] Bryan Oates
OJPs are becoming a critical resource for policy-makers and researchers who study the labour market. LMIC continues to work with Vicinity Jobs’ data on OJPs, which can be explored in our Canadian Job Trends Dashboard. Valuable insights have been gained through our analysis of OJP data, including LMIC research lead
Suzanne Spiteri’s recent report on improving the quality and accessibility of job postings to reduce employment barriers for neurodivergent people.
Decoding job postings: Improving accessibility for neurodivergent job seekers
Improving the quality and accessibility of job postings is one way to reduce employment barriers for neurodivergent people.
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
Optimizing Net Interest Margin (NIM) in the Financial Sector (With Examples).pdfshruti1menon2
NIM is calculated as the difference between interest income earned and interest expenses paid, divided by interest-earning assets.
Importance: NIM serves as a critical measure of a financial institution's profitability and operational efficiency. It reflects how effectively the institution is utilizing its interest-earning assets to generate income while managing interest costs.
Understanding how timely GST payments influence a lender's decision to approve loans, this topic explores the correlation between GST compliance and creditworthiness. It highlights how consistent GST payments can enhance a business's financial credibility, potentially leading to higher chances of loan approval.
South Dakota State University degree offer diploma Transcriptynfqplhm
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2. Inflation
Early 20th century Germany had bitter experience of inflation
Price began to rise so fast and high that they began to lose all meaning
Those who failed to shop on the pay day itself were losing their income because price would be very
much higher on the next day
The workers who received their wages were running to the shop to buy essential things because the
price were rising very fast.
Saving of the people became valueless like sand and were washed away in the current of inflation
3. Meaning of Inflation
In the ordinary sense inflation means a rise in the general prise level.
According to Crowther inflation is a state in which the value of money is falling and prices are
rising. This definition has two limitations
1. Ever increase in the prise according to him is inflationary and harmful. But a rise in the price
level during a period of depression is not at all harmful. It is a sign of recovery.
2. Crowther definition touches only the symptoms and not the cause of the inflation
According to Prof. Coulbourn “Inflation is too much money chases too few goods.
According to Milton Friedman “Inflation is always and everywhere a monetary phenomenon.
In short – Inflation is a sustained rise in the general price level.
4. Inflation
Points to remember
Chronic and sustained rise in price caused by in increase in the supply of money.
Too much money chases too few goods
General price level rise and value of money falls
7. A. On the basis of Rate
1. Creeping Inflation : This type of inflation is slow and mild. In the case of under developed countries
creeping inflation is a tonic for economic development. . In terms of speed, a sustained rise in prices
of annual increase of less than 3 per cent per annum is characterized as creeping inflation
2. Walking Inflation : When creeping inflation gathers momentum we experience walking inflation.
Walking inflation is not dangerous but it gives a warning that prices are going to rise faster and faster.
Walking inflation rate is the rise of prices is in the intermediate range of 3 and 7 per annum or less
than 10 per cent.
3. Galloping Inflation : If mild inflation is not checked and if it is allowed to go uncontrolled it may
assume the character of the galloping inflation. It may have adverse effect on the saving and thus may
affect the long term investment projections in the economy. When prices rise rapidly like the running
of a horse at a rate or speed of 10 to 20 per cent per annum. Such inflation affects the poor and middle
classes adversely.
4. Hyper Inflation : A final stage of inflation is Hyper inflation. It occurs when the price line goes out of
control and monetary authorities find it beyond their resources to impose any check on it. When prices
rise very fast at double or triple digit rates from more than 20 to 100 per cent per annum or more.
Types of Inflation
8. 5.Open Inflation : It is a inflationary process in which prices are permitted to rise without being
suppressed by government through price control or similar techniques.
6.Suppressed Inflation: When the government imposes physical and monetary controls to check open
inflation, it is known as repressed or suppressed inflation. But as soon as these controls are removed,
there is open inflation. Moreover, suppressed inflation adversely affects the economy.
7.Reflation: It is a situation when prices are raised deliberately in order to encourage economic activity.
When there is depression and prices fall abnormally low, the monetary authority adopts measures to put
more money in circulation so that prices rise. This is called reflation.
8.Stagflation : It represents the paradoxical co-existence of rising prices on the one hand and
unemployment on the other.
9.Slumpflication : It is experienced mainly in underdeveloped countries owing to the scarcity of essential
inputs.
9. Causes of Inflation
1. Increase in money supply and aggregate demand
2. Rise in cost of production
3. Excessive Exports
4. Excessive credit creation by the commercial banks
5. Deficit Budgeting
6. Black Money
7. Repayment of Internal Public Debt
10. Demand Pull Inflation
Demand pull inflation arises when the aggregate demand exceeds the level of currently available output.
In other words demand pull inflation is caused by an increase in aggregate effective demand for goods and services in the
economy.
Demand pull inflation is a phenomenon of too much money chasing too few goods.
So demand pull inflation occurs when the demand for goods and services exceeds their available supply at the existing prices.
An excess of aggregate demand over aggregate supply will generate inflationary rise in the prices.
Diagram
There are many causes leading to demand pull inflation. Those are
1.increase in money supply
2.increase in disposable income
3.Increase in public expenditure
Deficit financing
Black money
Repayment of public debt etc.
11.
12. Cost Push Inflation
The cost push inflation is due to increase in production costs.
In other words , cost push inflation is caused by wage increases enforced by trade unions and profit increase
by entrepreneurs.
It also caused by an organized attempt on the part of the entrepreneurs or industrialist to push up their profit
margins
Cost push inflation is also known as New Inflation and is caused by either wage push or profit push.
13.
14. Effects of Inflation
Inflation affects different people differently. This is because of the fall in the value of money. When prices rise or the value of
money falls, some groups of the society gain, some lose and some stand in between. Prices of some goods and services rise
faster, of others slowly, and of still others remain unchanged
(A) The effects of inflation on different groups of society
1. Debtors and Creditors: During periods of rising prices, debtors gain and creditors lose. Though debtors return the same
amount of money, but they pay less in terms of goods and services. This is because the value of money is less than when they
borrowed the money. On the other hand, creditors lose. Although they get back the same amount of money which they lent, they
receive less in real terms because the value of money falls.
(2) Salaried Persons: Salaried workers such as clerks, teachers, and other white collar persons lose when there is inflation. The
reason is that their salaries are slow to adjust when prices are rising.
(3) Wage Earners: Wage earners may gain or lose depending upon the speed with which their wages adjust to rising prices. If
their unions are strong, they may get their wages linked to the cost of living index. In this way, they may be able to protect
themselves from the bad effects of inflation. But the problem is that there is often a time lag between the raising of wages by
employees and the rise in prices
(4) Fixed Income Group: The recipients of transfer payments such as pensions, unemployment insurance, social security, etc.
and recipients of interest and rent live on fixed incomes. Pensioners get fixed pensions. All such persons lose because they
receive fixed payments, while the value of money continues to fall with rising prices
15. (6) Businessmen: Businessmen of all types, such as producers, traders and real estate holders gain during
periods of rising prices. When prices are rising, the value of their inventories rise in the same proportion. So they
profit more when they sell their stored commodities.
(7) Agriculturists: For prices of inputs and land revenue do not rise to the same extent as the rise in the prices of
farm products. On the other hand, the landless agricultural workers are hit hard by rising prices. Their wages are
not raised by the farm owners because trade unionism is absent among them. But the prices of consumer goods rise
rapidly. So landless agricultural workers are losers
(8) Government
16. (B) Effects on Production:
1. Misallocation of Resources: Inflation causes misallocation of resources when producers divert
resources from the production of essential to non-essential goods from which they expect higher
profits
2. Reduction in Production: Inflation adversely affects the volume of production because the
expectation of rising prices along with rising costs of inputs brings uncertainty. This reduces
production
3. Fall in Quality: Continuous rise in prices creates a seller’s market. In such a situation, producers
produce and sell sub-standard commodities in order to earn higher profits. They also indulge in
adulteration of commodities
17. 1. Hoarding and Black-marketing: To profit more from rising prices, producers hoard stocks of
their commodities. Consequently, an artificial scarcity of commodities is created in the market.
Then the producers sell their products in the black market which increase inflationary pressures.
2. Reduction in Saving: When prices raise rapidly, the propensity to save declines because more
money is needed to buy goods and services than before. Reduced saving adversely affects
investment and capital formation. As a result, production is hindered.
3. Encourages Speculation: Rapidly rising prices create uncertainty among producers who
indulge in speculative activities in order to make quick profits. Instead of engaging themselves in
productive activities, they speculate in various types of raw materials required in production
18. 1. Government: Inflation affects the government in various ways. It helps the government in financing
its activities through inflationary finance. As the money income of the people increases, the
government collects that in the form of taxes on incomes and commodities. So the revenues of the
government increase during rising prices. Moreover, the real burden of the public debt decreases
when prices are rising
2. Balance of Payments: Inflation adversely affects the balance of payments of a country. When prices
rise more rapidly in the home country than in foreign countries, domestic products become costlier
compared to foreign products. This tends to increase imports and reduce exports, thereby making the
balance of payments unfavorable for the country.
3. Collapse of the Monetary System: If hyperinflation persists and the value of money continues to fall
many times in a day, it ultimately leads to the collapse of the monetary system, as happened in
Germany after World War I.
(c) Other Effects:
19. (4) Social. Inflation is socially harmful: By widening the gulf between the rich and the poor,
rising prices create discontentment among the masses. Pressed by the rising cost of living, workers
resort to strikes which lead to loss in production. Lured by profit, people resort to hoarding, black-
marketing, adulteration, manufacture of substandard commodities, speculation, etc. Corruption
spreads in every walk of life. All this reduces the efficiency of the economy.
(5) Political: Rising prices also encourage agitations and protests by political parties opposed to
the government. And if they gather momentum and become unhandy they may bring the downfall
of the government. Many governments have been sacrificed at the altar of inflation
20. Measures to Control Inflation
1. Monetary Measures: Monetary measures aim at reducing money incomes.
(a) Credit Control: One of the important monetary measures is monetary policy. The central bank
of the country adopts a number of methods to control the quantity of credit. For this purpose, it raises
the bank rates, sells securities in the open market, and raises the reserved ratio.
(b) Demonetization of Currency: One of the monetary measures is to demonetize currency of
higher denominations. Such a measure is usually adopted when there is abundance of black money in
the country.
(c) Issue of New Currency: Under this system, one new note is exchanged for a number of notes of
the old currency. Such a measure is adopted when there is an excessive issue of notes and there is
hyperinflation in the country. It is a very effective measure. But is inequitable for it hurts the small
depositors the most.
21. 2. Fiscal Measures: Monetary policy alone is incapable of controlling inflation. It should, therefore,
be supplemented by fiscal measures. Fiscal measures are highly effective for controlling
government expenditure, personal consumption expenditure, and private and public investment.
(a) Reduction in Unnecessary Expenditure: The government should reduce unnecessary ex-
penditure on non-development activities in order to curb inflation. But it is not easy to cut
government expenditure and it becomes difficult to distinguish between essential and non-essential
expenditure. Therefore, this measure should be supplemented by taxation.
(b) Increase in Taxes: To cut personal consumption expenditure, the rates of personal, corporate
and commodity taxes should be raised and even new taxes should be levied, but the rates of taxes
should not be as high as to discourage saving, investment and production. To increase the supply of
goods within the country, the government should reduce import duties and increase export duties.
22. (c) Increase in Savings: Another measure is to increase savings on the part of the people. This will
tend to reduce disposable income with the people, and hence personal consumption expenditure. For
this purpose, the government should float public loans carrying high rates of interest, start saving
schemes, introduce compulsory provident fund, provident fund-cum-pension schemes, etc. All such
measures to increase savings are likely to be effective in controlling inflation.
(d) Surplus Budgets: An important measure is to adopt anti-inflationary budgetary policy. For this
purpose, the government should give up deficit financing and instead have surplus budgets. It means
collecting more in revenues and spending less.
Like the monetary measures, fiscal measures alone cannot help in controlling inflation. They should
be supplemented by monetary, non-monetary and non-fiscal measures
23. 3. Other Measures: The other types of measures are those which aim at increasing aggregate supply and
reducing aggregate demand directly:
(a) To Increase Production: One of the foremost measures to control inflation is to increase the
production of essential consumer goods like food, clothing, kerosene oil, sugar, vegetable oils, etc. All
possible help in the form of latest technology, raw materials, financial help, subsidies, etc. should be
provided to different consumer goods sectors to increase production.
(b) Rational Wage Policy: Another important measure is to adopt a rational wage and income policy.
Under hyperinflation, there is a wage-price spiral. To control this, the government should freeze wages,
incomes, profits, dividends, bonus, etc. It will control wages and at the same time increase productivity,
and hence increase production of goods in the economy.
(c) Price Control: Price control and rationing is another measure of direct control to check inflation.
Price control means fixing an upper limit for the prices of essential consumer goods. They are the
maximum prices fixed by law and anybody charging more than these prices is punished by law. But it is
difficult to administer price control.
(d) Rationing: Rationing aims at distributing consumption of scarce goods so as to make them available
to a large number of consumers. It is applied to essential consumer goods such as wheat, rice, sugar,
kerosene oil, etc. It is meant to stabilize the prices of necessaries and assure distributive justice.
24. Deflation is a general decline in prices for goods and services, typically associated with a
contraction in the supply of money and credit in the economy. During deflation, the purchasing
power of currency rises over time.
1.Deflation is the general decline of the price level of goods and services.
2.Deflation is usually associated with a contraction in the supply of money and credit, but prices
can also fall due to increased productivity and technological improvements.
3.Whether the economy, price level, and money supply are deflating or inflating changes the
appeal of different investment options
Deflation
26. Business Cycle or Trade Cycle refers to the phenomenon of cyclical booms and depression.
In a business cycle there are wave like fluctuations in aggregate employment, income, output
and price-level. It consists of recurring alternation of expansion and contraction in aggregate
economic activity.
Generally, the cyclical fluctuations have a tendency towards simultaneous appearance in all
the branches of the national economy. But sometimes they may be confined only to individual
industries or individual sectors of the economy.
Business Cycle
27. 1. Business cycles occur periodically. Though they do not show same regularity, they have some
distinct phases such as expansion, peak, contraction or depression and trough. Further the duration of
cycles varies a good deal from minimum of two years to a maximum of ten to twelve years.
2. Secondly, business cycles are Synchronic. That is, they do not cause changes in any single
industry or sector but are of all embracing character. For example, depression or contraction occurs
simultaneously in all industries or sectors of the economy. Recession passes from one industry to
another and chain reaction continues till the whole economy is in the grip of recession. Similar
process is at work in the expansion phase, prosperity spreads through various linkages of input-output
relations or demand relations between various industries, and sectors
3. Thirdly, it has been observed that fluctuations occur not only in level of production but also
simultaneously in other variables such as employment, investment, consumption, rate of interest
and price level.
Features of Business Cycles:
28. 4. Investment and consumption of durable consumer goods such as cars, houses, and
refrigerators are affected most by the cyclical fluctuations. As stressed by J.M. Keynes,
investment is greatly volatile and unstable as it depends on profit expectations of private
entrepreneurs. These expectations of entrepreneurs change quite often making investment quite
unstable. Since consumption of durable consumer goods can be deferred, it also fluctuates greatly
during the course of business cycles
5. Consumption of non-durable goods and services does not vary much during different phases
of business cycles. Past data of business cycles reveal that households maintain a great stability in
consumption of non-durable goods.
29. Types of Business Cycles
There are five types of cycles which are as follows:
1. The Minor Cycle: This is also known as Short Kitchin Cycle. This has gained popularity after the name of the British economist
Joseph Kitchin in the year 1923. He made a research and came to this conclusion that a cycle takes place within duration of
approximately 30 to 40 months.
2. The Major Cycle: This has been emphasized as the fluctuation of business activity between successive crises. This is also known as
“The Long Jugler Cycle.” A French economist Clement Jugler showed that the periods of prosperity, crisis and liquidation followed
each other always within a span of the average of nine and half years.
3. The Very Long Period Cycle: This is also known as Kondratieff Cycle. This was propounded by N. D. Kondratieff the Russian
economist in the year 1925. He has written that there are longer waves of cycles of more than fifty years duration.
4. Kuznets Cycle: This type of business cycle was propounded by the famous American economist Professor Simon Kuznet. His view
was that the secular swing of the cycle generally occurs in between 7 to 11 years and this can show effect within that period.
5. Building Cycles: Such cycles are associated with the name of two American economists namely Warren and Pearson. They
expressed their views in World Prices and the Building Industry book in the year 1937. Their view was that business cycle occurs in the
duration of an average of 18 years and the cost of such cycle has major effect on building construction and on the industrial
development.
30. Phases of Business Cycle
A typical or standard business cycle is characterized by five different phases or stages-depression, recovery
(or, revival), prosperity (or, full employment), boom (or, overfull employment), and recession.
31. Depression
This constitutes the first stage of a business cycle. It is a protracted period in which business activity in
the country is far below the normal. It is characterized by a sharp reduction of production, mass
unemployment, low employment, falling prices, falling profits, low wages, contraction of credit, a
high rate of business failures and an atmosphere of all-round pessimism and despair. A decline in
output or production is accompanied by a reduction in the volume of employment. All construction
activities come to a more or less complete standstill during a depression. The consumer-goods
industries, such as, food, clothing, etc. are not so much affected by unemployment as the basic capital
goods industries. The prices of manufactured goods fall to low levels. Since the costs are “sticky” and
do not fall as rapidly as prices, the manufacturers suffer huge financial losses. Many of these firms
have to close down on account of accumulated losses.
32. Recovery (or, Revival)
It implies increase in business activity after the lowest point of the depression has been reached. During
this phase, there is a slight improvement in economic activity, to start with. The entrepreneurs being to
feel that the economic situation was, after all, not so bad as it was in the preceding stage. This leads to
further improvement in business activity. The industrial production picks up slowly and gradually. The
volume of employment also steadily increases. There is a slow, but sure, rise in prices, accompanied by
a small rise in profits. The wages also rise, though do not rise in same proportion in which the prices
rise. Attracted by rising profits, new investments take place in capital goods industries. The banks
expand credit. The business inventories also start rising slowly. The pessimism and despair of the
preceding period is replaced by an atmosphere of all-round cautious hope.
33. Prosperity (or, Full Employment)
This stage is characterized by increased production, high capital investment in basic industries,
expansion of bank credit, high process, high profits, a high rate of formation of new business
enterprises and full employment. There is a general feeling of optimism among businessmen and
industrialists
34. It is the stage of rapid expansion in business activity to new high marks, resulting in high stocks
and community prices, high profits and overall employment. The prosperity phase of the business
cycle does not end up with a stable state of full employment; it leads to the emergence of boom.
The continuance of investment even after the stage of full employment results in a sharp inflationary
rise of prices. This causes undue optimism among businessmen and industrialists who make additional
investments in the various branches of the economy.
Boom (or, Overall Employment)
35. The feeling of over-optimism of the earlier period is replaced now by over-pessimism
characterized by fear and hesitation on the part of the businessmen. The failure of some
business creates panic among businessmen. The banks also get panicky and begin to withdraw
loans from business enterprises. More business enterprises fail. Prices collapse and
confidence is rudely shaken. Building construction slows down and unemployment
appears in basic, capital goods industries. This capital unemployment then spreads to
other industries. Unemployment leads to fall in income, expenditure, prices and profits. The
recession, it should be remembered, has cumulative effect. Once a recession starts, it goes on
gathering momentum and finally assumes the shape of depression-the first phase of the
business cycle complete.
Recession