This document is a student assignment on macroeconomics that analyzes inflation and unemployment trends in India from 2005 to 2011. It includes graphs of inflation and unemployment rates and discusses their relationship. The key points are: 1) Inflation increased from 2005 to 2007 due to strong economic growth and increased consumer purchasing power. 2) From 2008, recession caused unemployment to rise and purchasing power/demand to fall, decreasing inflation. 3) Unemployment and inflation trends show they have an inverse relationship - when one increases, the other decreases. The recession impacted both.

1. ASSIGNEMENT - 2
MACRO ECONOMICS
Submitted to
Prof. RuchikaBansal
Submitted by
SIVA SHANMUGA PRIYA N S
2011012
Indus World School of Business Date:
Greater Noida 22/02/2012

2. Inflation Graph & Interpretation
A continuous rise in the prices of goods or commodities over a period of time
is 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

3. - 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% to
around 6%. There were several reasons for that. The boom in the IT industry
was an important reason for that. It gave the consumers purchasing power
because of high salary packages.
Consumer’s purchasing power had increased and the price of commodities
also increased.
But after April 2007 there was decline in therate of inflation due to low prices
of vegetables, poultry chicken, fruits, and a few items. Some products that had
become cheaper were imported basic pig iron edible oil, methanol, bakery
products, 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 slightly
started 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 recession
period 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 of
recession and they started blooming and the inflation starts increasing.

4. Unemployment Graph & Interpretation
The Unemployment factor is having an important role in the economic
growth.
From 2006 to 2008 the unemployment rate was going down, that implies
people are getting employed in this period. The reason for this is booming of
IT industries and related telecom industries, e- commerce introduction to the
market and other big players started expanding their businesses to various
other sectors and product line.
From 2008 to 2010 we could find the high rate of unemployment, due to
recession in the world economy. It resulted in people started losing their jobs
and 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 after
math 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

5. Inflation with Unemployment
If we start analyzing by combining both inflation and unemployment, we
could get an idea of the interdependency among them.
2006 to 2008 - Unemployment rate was decreasing – Inflation rate was
increasing.
That implies people are getting employed in this period because of booming
IT/ ITES industries, related telecom industries, e- commerce introduction to
the market and other big players started expanding their businesses to
various other sectors and product line. So the increased employment led to
money circulation in market through the people’s salary and increased
purchasing power and the commodities rate started increasing.
2008 to 2010 Unemployment rate was increasing – Inflation rate was
decreasing.
Due to recession in the world economy people in all industry started losing
their jobs and they were not able to find new jobs quickly. It led to decreased
purchasing power of them and the prices started falling down.
After 2011 Unemployment rate was constant – Inflation rate is almost
constant with slight variation
The unemployment level remains same that leads almost same inflation rate
with slight variation. That indicates that the recession has still having its effect
in the economy.
We could understand from this, that the unemployment and inflation almost
has inverse relationship.