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Inflation
This document discusses inflation in the Indian economy. It defines inflation as a rise in the general price level and a fall in the purchasing power of money. There are two main types of inflation - demand-pull inflation, which occurs when demand exceeds supply, and cost-push inflation, which is caused by increased production costs. The consequences of inflation include uncertainty, reduced savings and investment, and income redistribution. To control inflation, the government uses fiscal measures like taxes, monetary measures like interest rates, and general measures like wage and price controls. Empirical data shows India's inflation rate was 5.96% in March 2013 according to the wholesale price index.
In this document
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Introduction to inflation, its significance, and impact on the Indian economy.
Definition of inflation emphasizing price rise and money value fall, driven by excess money circulation.
Continuous price rise in general leading to reduced purchasing power of money.
Two main types of inflation: Demand Pull and Cost Push.
Occurs when demand exceeds supply, leading to rising prices due to excess demand.
Graphical illustration of the relationship between aggregate demand and real GDP in demand pull inflation.
Results from rising production costs, where costs increase prices due to decreased aggregate supply.
Graph showing how changes in aggregate supply affect price levels and real GDP.
Negative effects on economic growth, savings, investments, and income distribution.
Effects include fiscal drag, adverse balance of payments, and decreased real savings value.
Three primary measures to control inflation: Fiscal, Monetary, and General measures.
Recommendations include increasing direct and indirect taxes and reducing government spending.
Strategies such as increasing interest rates and decreasing money supply and credit.
Measures include increasing productivity, price freezes, encouraging savings, and inflation targeting.
Introduction to the empirical data of inflation rates in India.
Inflation recorded at 5.96% in March 2013 with the WPI being the key measure.
Breakdown of WPI into Primary Articles, Fuel & Power, and Manufactured Products.
Wrap-up and thank you note for the presentation.
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Inflation
- 1. INFLATION Meaning, Measures andImpact on Indian Economy By Surajit Basak Sananda Dasgupta Sangeeta Nandi Suvajit Das Sougata Dhar Bandel Bholanath Ghosh Institute Of Engineering & Management PGDM 1ST YEAR By PresenterMedia.com
- 2. INFLATION: Meaning In abroad sense, inflation is that state in which the prices of goods and services rise on the one hand and value of money falls on the other When money circulation exceeds the production of goods and services, then inflation takes place in the economy
- 3. Features of Inflation Itis a continuous process. It refers to a rise in prices in general. It involves a considerable increase in prices. It causes a decline in the purchasing power of money.
- 4. Types of Inflation 1. 2. DemandPull Inflation Cost Push Inflation
- 5. Demand Pull Inflation Thedemand for goods and services increases and production remains the same or does not increase as fast. The excess demand results in prices being “pulled up”. Demand pull inflation occurs when total demand for goods and services exceeds the total supply. This type of inflation happens when there is an inflationary gap
- 6. Demand Pull Inflation Price$ Aggregate Supply P2 Aggregate Demand 2 P1 Aggregate Demand 1 Q1 Q2 6 Real GDP ($)
- 7. Cost Push Inflation Causedby an increase in the cost of production. Increased costs “push up” the price level. Cost push inflation can result from change in aggregate supply. The two main sources of change in aggregate supply are increase in wage rate and price of raw material.
- 8. Cost Push Inflation Price$ Aggregate Supply 2 Aggregate Supply 1 P2 P1 Aggregate Demand Q2 Q1 8 Real GDP ($)
- 9. Consequences of inflation Inflationimpacts negatively on economic growth. Inflation brings about uncertainty in the economy. Savings and investment are discouraged. Inflation affects the distribution of income. Redistributes income from people with fixed incomes to those with flexible incomes. Redistributes income from private individuals to the government.
- 10. Consequences of inflation Causesfiscal drag and bracket creep: salary increases move people into higher tax brackets and they could be effectively worse off. Inflation has an adverse effect on a country’s balance of payments. If India’s rate of inflation is higher than that of our trading partners the result is a loss of international competitiveness. Inflation can cause a decrease in the real money value of savings.
- 11. Measures to controlInflation Fiscal Measures Monetary Measures General Measures
- 12. Fiscal measures Increase directtaxes. Increase indirect taxes. Reduce government spending. Introduce measures to increase productivity, e.g. tax rebates
- 13. Monetary measures Increase interestrates of banks. Decrease money supply. Decrease availability of credit from banks. Decrease currency control.
- 14. General Measures Increase productivity. Freezeprices and wages. Implement a wage restraint policy. Encourage personal savings. Implement control measures for consumer credit. Import control: make competing imported goods cheaper. Introduce price indexation: linking all prices to a particular index, e.g. CPI. Inflation targeting.
- 15. Empirical evidence ofInflation rate in India
- 16. The inflation ratein India was recorded at 5.96 percent in March of 2013,which is reported by the Ministry of Commerce and Industry In India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods.
- 17. In India, wholesaleprice index is divided into three groups: Primary Articles (20.1 percent of total weight), Fuel and Power (14.9 percent) and Manufactured Products (65 percent).
- 18.