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Prof. Gregory a former adviser to the undivided Govt. of indo-pak in his article on inflation defined it as “An abnormal increase in the quantity of purchasing power”. In the words of Gardner Ackley “Inflation may be defined as a persistent and appreciable rise in general level or average of prices.” Haw trey in 1928 define inflation as "The issue of too much currency”. INFLATION : 3 INFLATION Inflation is the pervasive and sustained rise in the aggregate level of prices measured by an index of the cost of various goods and services. Sustained price increases were historically directly linked to wars, poor harvests, political upheavals, or other unique events. KINDS OF INFLATION: : 4 KINDS OF INFLATION: Inflation is of different types. It is generally classified on the following basis: ON THE BASIS OF RATE OF INFLATION. ON THE BASIS OF DEGREE OF CONTROL. INFLATION ON THE BASIS OF CAUSES. ON THE BASIS OF EMPLOYMENT. KINDS OF INFLATION: : 5 KINDS OF INFLATION: INFLATION ON THE BASIS OF RATE OF INFLATION: CREEPING INFLATION. WALKING INFLATION. RUNNING INFLATION. HYPER-INFLATION. KINDS OF INFLATION: : 6 KINDS OF INFLATION: INFLATION ON THE BASIS OF DEGREE OF CONTROL: OPEN INFLATION. SUPPRESSED INFLATION. KINDS OF INFLATION: : 7 KINDS OF INFLATION: INFLATION ON THE BASIS OF DIFFERENT CAUSES: DEMAND PULL INFLATION. COST PUSH INFLATION. PROFIT PUSH INFLATION. BUDGETARY INFLATION. MONETARY INFLATION. KINDS OF INFLATION: : 8 KINDS OF INFLATION: INFLATION ON THE BASIS OF EMPLOYMENT: PARTIAL INFLATION. FULL INFLATION. KINDS OF INFLATION: : 9 KINDS OF INFLATION: CAUSES OF INFLATION : 10 CAUSES OF INFLATION There are different causes of inflation which are : INCREASE IN MONEY SUPPLY. INCREASE IN GOVT. EXPENDITURE. INCREASE IN PRIVATE EXPENDITURE. INCREASE IN POPULATION. BLACK MONEY. CAUSES OF INFLATION : 11 CAUSES OF INFLATION THE CAUSES OF INFLATION INCLUDES: LAGGING AGRICULTURAL AND INDUSTRIAL PRODUCTION. INADEQUATE INFRASTRUCTURE FACILITIES. LONG GESTATION PERIOD. INCREASE IN MONEY WAGE RATES. INCREASE IN PROFIT MARGIN. CAUSES OF INFLATION : 12 CAUSES OF INFLATION THE CAUSES OF INFLATION INCLUDES: MATERIAL PUSH INFLATION. HIGHER TAXES. NATURAL CALAMITIES. LIVING STANDARD OF PEOPLE. INTERNATIONAL CIRCUMSTANCES. EFFECTS OF INFLATION : 13 EFFECTS OF INFLATION There are different effects of inflation on the particular country which include: An increase in the inflation implies a decrease in the purchasing power of the currency. High or unpredictable inflation rates are regarded as harmful to an overall economy. Inflation adds inefficiencies in the market. Inflation make it difficult for companies to budget or plan long-term goals or achievements. EFFECTS OF INFLATION : 14 EFFECTS OF INFLATION There are different effects of inflation on the particular country which include: Inflation can impose hidden tax increases. Inflation can act as a drag on productivity as companies are forced to shift resources away from products and services in order to focus on profit and losses from currency inflation. Uncertainty about the future purchasing power of money discourages investment and saving . EFFECTS OF INFLATION : 15 EFFECTS OF INFLATION NEGATIVE EFFECTS OF INFLATION: Some of the negative effects associated with the inflation are: WAGES SPIRAL. HOARDING. HYPER-INFLATION. LOSS OF ALLOCATIVE EFFICIENCY. SHOE LEATHER COST. MENU COST. NEGATIVE EFFECTS OF INFLATION: : 16 NEGATIVE EFFECTS OF INFLATION: EFFECTS OF INFLATION : 17 EFFECTS OF INFLATION POSITIVE EFFECTS OF INFLATION: Some possibly positive effects of (moderate) inflation include: LABOR MARKET ADJUSTMENTS. TOBIN EFFECTS. DEBT RELIEF. ROOM TO MANEUVER. POSITIVE EFFECTS OF INFLATION: : 18 POSITIVE EFFECTS OF INFLATION: STABILIZATION MEASURES : 19 STABILIZATION MEASURES To avoid political unrest and harmful, social and economics effects on the economy, it is the main objective of every government to take appropriate measures to control inflation. The main measures which are used to control inflation are: Monetary policy. Fiscal policy and other measures. STABILIZATION MEASURES : 20 STABILIZATION MEASURES MONETARY POLICY: Monetary policy is a policy that influences the economy through changes in the money supply and available credit. Monetary policy is adopted by central bank of a country. The various monetary measures which are used to control inflation are grouped under two heads: Quantitative controls. Qualitative controls. STABILIZATION MEASURES : 21 STABILIZATION MEASURES MONETARY POLICY: Monetary policy having two heads, involves: Open market operations. Variation in bank rates. Credit rationing. varying reserve requirements. STABILIZATION MEASURES : 22 STABILIZATION MEASURES MONETARY POLICY: Monetary policy having two heads, involves: Varying margin requirements. Budge and business cycle. Supply side economics and gold standard. Money control and price control. STABILIZATION MEASURES : 23 STABILIZATION MEASURES FISCAL POLICY: Fiscal policy is the deliberate change in either government spending or taxes to stimulate or slow down the economy. It is the budgetary policy of the govt. relating to taxes public expenditure, public borrowing and deficit financing. Fiscal policy is based upon demand management i.e. raising or lowering the level of aggregate demand by controlling various expenditures, government expenditure, consumption expenditure and investment expenditure. STABILIZATION MEASURES : 24 STABILIZATION MEASURES FISCAL POLICY: The main fiscal measures are: CHANGES IN TAXATION. CHANGES IN GOVT. EXPENDITURE. PUBLIC BORROWING. BALANCED BUDGET CHANGES. CONTROL OF DEFICIT FINANCING. STABILIZATION MEASURES : 25 STABILIZATION MEASURES OTHER MEASURES: The other measures which are helpful in controlling inflation are: Import should be reduced. Export should be increased. Price support programmed. Provision of subsidies. Factories should increase their production so that we may export the surplus production and earn foreign exchange. STABILIZATION MEASURES : 26 STABILIZATION MEASURES OTHER MEASURES: The other measures which are helpful in controlling inflation are: The circulation of currency should be controlled. The free foreign exchange policy should be controlled. The use of luxuries should be avoided. Imposing direct control on prices of essential item. Arrangements of easy availability of goods on hire purchase to stimulate demand. STABILIZATION MEASURES : 27 STABILIZATION MEASURES After taking the above mentioned steps the rise in prices can be controlled in long run. The government, therefore, take monetary, fiscal and other measures to combat inflation. “THANKS” : 28 “THANKS” You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.