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Meaning of Inflation
Meaning of Inflation
-ANOOP GORIYA
MBA(GEN)
ROLL.NO.-80
Meaning of inflation
In economics, inflation is a rise in a general price level of
goods and services in an economy over a period of
time
Definitional problems:-
1. Which price index should be taken to indicate the
presence or absence of inflation?
2.Should prices to be considered include taxes?
3.Some price rises due to natural calamities are not
inflationary .
4 It is difficult to determine a safe rate of price rise.
CHARACTERISTICS
Inflation is the phenomenon of rising prices
Inflation is the monetary phenomenon, it the
increase in the stock of money
Once started it goes on feeding itself and it is not
self- limiting
True inflation takes place only after full employment
It doesn't increase employment and real output
It is incompletely anticipated and grows faster then
the safe rate
CAUSES
Increase in money supply
Deficit financing
Increase in government expenditure on big development
projects
Excessive credit creation by banks to finance unproductive
business
High rate of growth of population
The holder of black money indulging in conspicuous
consumption
Payment of public debt increase purchasing power
Increase in demand for the domestic product in foreign market
Effects of inflation
Effects on economic activity
Redistributive effects
Social , political and moral effects
Effects on economic activity
Inflation discourage saving, hence investment
and capital formation
Inflation encourages speculations
It encourages hoardings, black marketing and
profiteering
Inefficient businessman leads to inefficiency,
lower productivity and lower quality of product
and more inflation
REDISTRIBUTIVE EFFECT
During inflation creditors lose and debtors gain
Wage- earners and salary people lose because their income is fixed
Consumers suffer a lot
Businessman and entrepreneurs gains abnormally during inflation
Farmers gain as a producers and debtors, but lose as a ordinary
consumers
Government gain as a debtor and lose as a creditor
The small investors who put their savings in fixed interest-bearing
security lose . Investors of equity gains
If the tax rates are fixed , the payers now gain because in real term
they are paying less.
SOCIAL,POLITICAL AND MORAL EFFECTS
Walking
Running
Galloping or hyper-inflation
Cost-push inflation
True inflation
Peace time(disequilibrium)
Control of inflation
There are three main measure of controlling
inflation as under:-
Monetary measures
Fiscal measures
AUGUST 8.51%
SEPTEMBER 8.62%
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