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Edit Comment Close Premium member Presentation Transcript INFLATION: INFLATIONWhats Inflation ?: Whats Inflation ? Inflation is a rise in the general level of prices of goods and services over time. "Inflation" is used to refer to a rise in the prices of some specific set of goods or services, as in " commodities inflation ".Headlines in TIMES OF INDIA : Headlines in TIMES OF INDIA 15 th August 08 – Inflation continues rising hits 12.44% 14 th August 08 – PM panel pegs inflation at 13% Causes Of Inflation: Causes Of Inflation EXTREME IMBALANCE OF GLOBAL ECONOMY FUEL PRICE HIKE HIGHER INTERNATIONAL FARM PRICES FOOD PRICE HIKE EXTREME IMBALANCE OF GLOBAL ECONOMY : EXTREME IMBALANCE OF GLOBAL ECONOMY This is simply because developed western economies, particularly the United States, are consuming on a massive scale, leading to huge trade imbalance. Crucially their extreme levels of consumption and imports are matched by their nay fetish, of the developing countries. In having an export-driven economic model.FUEL PRICE HIKE: FUEL PRICE HIKEHIGHER INTERNATIONAL FARM PRICES: HIGHER INTERNATIONAL FARM PRICES What actually compounds the problem for India, is the fact that- lower harvest worldwide. Specifically in Australia and Brazil, the overall strength of demand and supply of low stock positions world over. Global food commodity prices have continued to rise. These global trends have put upward pressure on domestic prices of food commodities and are expected to continue to do so during the course of this year.Slide 8: First, there is the impact of high fuel prices, which affect agricultural costs directly because of the significance of energy as an input in the cultivation process itself (through fertilizer and irrigation costs) as well as in transporting food. Across the world , governments have reduced protection and subsidies on agriculture, which means that high costs of energy directly translates into higher costs of cultivation, and therefore higher prices of output. FOOD PRICE HIKESlide 10: Effects of Inflation Economic Effects : The impact of Inflation on the economic system may be classified into 3 kinds 1) Effects on production (that is changes in the routine of economic activity) 2) Effects on income distribution (that is , re-distribution of income and wealth) 3) Effects on the consumption and welfare .Slide 11: Effects on production Inflation has a favourable effect on production when there are unutilised or under-employed resources in existence in an economy . Rising prices breed optimistic expectations within the business community, in view of increasing profit margins, because the price level moves up at a faster rate than the cost of production.Slide 12: Effects on Income distribution Inflation redistributes income. Prices of all factors do not rise in the same proportion. Since the effort of inflation on the incomes of different classes of earners varies, there are serious social consequences. During inflation, the distribution of shares to the profiteers increases more than that of the wage earners or fixed-income earners, such as the rentier class. All producers , traders and speculators gain during an inflation because of the windfall profits which arise, because prices rise at a faster and higher rate than the cost of production.Slide 13: Effects on the consumption and welfare Inflation implies an erosion of the consumer’s value of money. It is a form of taxation. Due to deteriorating purchasing power the real consumption of the common people declines. Rising cost of living during inflation implies falling standard of living and lowering of general economic welfare of the community at large . In short, inflation is unfair on the distribution of side of economic activity.INFLATION AFFECTING THE COMMON MAN: INFLATION AFFECTING THE COMMON MANFUEL HIKE: FUEL HIKE Fuel Hike has taken its toll on the common man. Inflation has forced the government to hike the fuel prices by approximately Rs 6/Ltr and LPG gas by Rs 50/Cyldr. This years fuel hike is the highest fuel hike recorded in the Indian history . LPG which is the essential necessity of every house is on a low supply and not meeting its demands even after the hike . A Common man just cannot survive with so many odds going against him .Slide 19: FOOD PRICE HIKE In times of rising inflation, this means that increased cost of living for the population. Commodity prices, for example, have increased by around 20% in 2008. With most of India’s vast population living close to – or below – the poverty line, inflation acts as a ‘Poor Man’s Tax’. This effect is amplified when food prices rise, since food represents more than half of the expenditure of this group.Slide 20: Inflation affecting the common man’s day to day savings Inflation reduces the real amount of savings in the long run. Common man is adversely affected when the annual rate of inflation is exceeding the current rate of interest. Continuous inflation also discourages the individual savings of a common man .Slide 21: Inflation widening the gap between the rich and the poor Inflation in a country creates a breeding ground for social upheavals. Inflation re-distributes income and wealth in favour of the rich, and widens the gap between the rich and the poor . Inflation favours the rich and the black marketers . The rich and the business class get ample chances of making profit through unfair means , while the poor people indirectly suffer the social sins done by the rich and the manipulating business class. Thus the rich become richer and the poor become poorer during inflation .Slide 22: Steps taken by the Government to control inflation(Ministry of Finance).Slide 23: The Government said that liberalization of imports, banning exports and a cut in excise and customs duties are among the steps taken by the Government to control inflation in the country. The Government has directed the Reserve Bank of India (RBI) to take monetary measures and to put down interest rates to control Inflation. The Central Government of India has directed the Chief Ministers of all the states in India to take preventive measures to control Inflation like cutting down of sales tax , custom and excise duties . Some of the state Governments have taken up the initiative to provide lower priced ration goods for the Below Poverty Line (BPL) Masses because they are the ones who are the mostly effected . Steps taken by the Government so far.Slide 24: EMPHASIS ON BIOFUEL With petroleum product prices rising steadily; diesel alone has become 25 per cent costlier over the last year. Apart from the search for alternatives, it is the need to achieve energy independence that is directing so much focus on biofuels and the crops that will help yield these oils.. If sugar mills are being encouraged to produce ethanol from sugarcane for blending with petrol, efforts are on to cultivate such crops as jatropha and pongamia, which yield oil that can either be blended with diesel or used independently. The problem of the huge oil import bill and the price uncertainty can be mitigated by cultivating biofuel crops on the over 60 million hectares of wasteland available in the country .Slide 25: Inflation is unjust because it affects different classes of people in the society in different ways and in different degrees. If inflation were to affect everyone in the society in exactly the same manner and to the same the degree, it would not alter the economic and social relationships in the community. But inflation takes away wealth from some people and transfers it to others on a random basis without taking into consideration the sound maxim of social equality. You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.