INFLATION

Introduction
Definition Methods to measure

Inflation Types of Inflation Causes of Inflation Effects of Inflation Measure to control Inflation Inflation rate Conclusion

 Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair

Inflation means a persistent increase in the level of consumers prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.

In Economics, Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.

 Consumer Price Index (CPI)

Wholesale Price Index (WPI)

Inflation Current CPI/WPI Last Calculated CPI/WPI = Rate Last Calculated CPI/WPI Inflation 150 - 140 = Rate 140

100

100

= 7.12%

War Time Inflation Peace Time Inflation

1.
2. 3. 4.

Creeping Inflation.
Walking Inflation. Running Inflation. Galloping or Hyper Inflation.

Open Inflation : Government takes no steps to control price rice

Repressed Inflation : Price level check by Government

 Comprehensive : All commodities available in

the economy witness price rise

Sporadic Inflation : Only a few commodities

register a rise in price

 Partial : Before the stage of full employment Full : After the stage of full employment is

reached

 Demand Pull : Increase in the aggregate

demand for goods and services

Cost Push : a. an increase in wages

b. an increase in the profit margin

Inflation is a persistent and appreciable rise in general level or average of price -Acc to ACKLEY

1.

DEMAND side factors: Aggregate demand is greater than aggregate supply

SUPPLY side factors: Aggregate supply fall short of aggregate demand

2.

1.

Rise in Public expenditure - expenditure incurred by govt. - Aggregate demand is greater than aggregate supply

2.

Deficit financing - Expenditure is more than Income

 Irving fishers quantity of money

explainsIncrease in money supply with proportionate increase in output lead to rise in PRICE and fall in money VALUE

 It is unearned income by

public servants Excess demand lead to inflation

 Growth in population Growth in private expenditure Increase in Export Money reduction in direct taxes

 Industrial disputes Natural calamities Artificial scarcity Increase in export

 Global factors [impact high oil price] Fluctuating agricultural growth

Neglecting the production of consumer goods

Effects of inflation

Inflationary noise Effect on economic growth Effect on consumption and economic welfare

Economic Effect of inflation

Distribution of income.
Distribution of wealth Different sector of society.

Wage earner Producer Fixed income people Borrower & lender Government Employment

 MONTARY MEASURES FISCAL MEASURES OTHER MEASURES

A) CREDIT CONTROL B) DEMONETIZATION C) ISSUE OF NEW CURRENCY

A) REDUCTION IN UNNECESSARY EXPENDITURE

B) INCREASE IN TAXES C) INCREASE IN SAVING D) SURPLUS BUDGETS E) PUBLIC DEBT

A) PRICE AND WAGE CONTROL B) INDEXATION C) TO INCREASE IN PRODUCTION D) RATIONING

Inflation rate 89.7 %

German paper mark OCT 1923 Inflation rate 20.87%