ECONOMICS HOLIDAY HOMEWORK

Articles on economics inflation, growth, production of a country and infrastructure development.

ARTICLE 1:
Global economic activity is experiencing a broad-based and sharper-than-expected
slowdown, with inflation higher than seen in several decades. The cost-of-living crisis,
tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the
lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to
slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the
weakest growth profile since 2001 except for the global financial crisis and the acute phase
of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8
percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. Monetary
policy should stay the course to restore price stability, and fiscal policy should aim to
alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned
with monetary policy. Structural reforms can further support the fight against inflation by
improving productivity and easing supply constraints, while multilateral cooperation is
necessary for fast-tracking the green energy transition and preventing fragmentation.
In 37 of these 44 nations, the average annual inflation rate in the first quarter of this year
was at least twice what it was in the first quarter of 2020, as COVID-19 was beginning its
deadly spread. In 16 countries, first-quarter inflation was more than four times the level of
two years prior. (For this analysis, we used data from the Organization for Economic
Cooperation and Development, a group of mostly highly developed, democratic countries.
The data covers 37 of the 38 OECD member nations, plus seven other economically
significant countries.)
Among the countries studied, Turkey had by far the highest inflation rate in the first quarter
of 2022: an eye-opening 54.8%. Turkey has experienced high inflation for years, but it shot
up in late 2021 as the government pursued unorthodox economic policies, such as cutting
interest rates rather than raising them.

ARTICLE 2

Long-lasting episodes of high inflation are often the result of lax monetary policy. If the
money supply grows too big relative to the size of an economy, the unit value of the
currency diminishes; in other words, its purchasing power falls and prices rise. This
relationship between the money supply and the size of the economy is called the quantity
theory of money and is one of the oldest hypotheses in economics.

Pressures on the supply or demand side of the economy can also be inflationary. Supply
shocks that disrupt production, such as natural disasters, or raise production costs, such as
high oil prices, can reduce overall supply and lead to “cost-push” inflation, in which the
impetus for price increases comes from a disruption to supply. The food and fuel inflation of
2008 was such a case for the global economy—sharply rising food and fuel prices were
transmitted from country to country by trade. Conversely, demand shocks, such as a stock
market rally, or expansionary policies, such as when a central bank lowers interest rates or a
government raises spending, can temporarily boost overall demand and economic growth.
If, however, this increase in demand exceeds an economy’s production capacity, the
resulting strain on resources is reflected in “demand-pull” inflation. Policymakers must find
the right balance between boosting demand and growth when needed without
overstimulating the economy and causing inflation.

ARTICLE 3

To facilitate production and investment in the economy we need the best infrastructure in
terms of quality and also should be sufficient. The bigger infrastructure facilities pave the
way for bigger investments in that sector. But the problem with underdeveloped countries
is the shortage of these facilities because of less economic development. The Indian
economy was really behind by the time it got its independence with respect to the rest of
the world.  So once we got independent the first priority for the planners of the country was
infrastructure development. 
Out of the total planned expenditure about 50 percent was devoted to infrastructure. In the
first plan, thirteen percent was spent on power, ten percent on flood and irrigation control,
and twenty-seven percent was given to transport and communication.  Because of all the
infrastructure development we have done since independence, we have caught up with the
rest of the world and the country has become one of the most promising countries in terms
of development and growth.
As the government focuses on the vitality of infrastructure in terms of growth and
development it is at the same time cutting down the investment in the infrastructure sector.
In recent years, the Public-private partnership is gaining a lot of momentum and an
economic survey found the PPP projects to be highly impactful for the country. The survey
talks about how India is getting a lot of foreign direct investments and also it attracts a lot of
private capital to take on a lot of infrastructure projects. The PPP has also found ways to cut
down on irrelevant expenditures and make infrastructure development more efficient.
The Public-Private Partnerships can help in sharing various risks, cost recovery,
accountability, and also help in infrastructure management. The various steps the
government has taken over the years are as follows- 

 Increasing tax rebates on debentures and shares so the flow of savings and
infrastructural growth will be better oriented. 
 Increasing direct investment from international markets in order to get more capital
and accelerate economic and infrastructural growth. 
 Tax holidays are remitted to companies and these can be used to maintain various
infrastructural facilities. Among the long-term capital gains that are earned by any
company, there are tax exemptions on interest and dividends. 
 The Infrastructure Development Finance Company was established by the
government in 1997. This body authorized the capital of 5,000 crore rupees.