INFLATION

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INFLATION:

INFLATION

Slide 2:

Meaning : Inflation is “a general rise in the prices in a persistent manner”. By persistent manner it is implied that prices rise over a significant period of time and does not respond to anti-inflationary policies. Hence, inflation is not a one-time increase in the overall price level. It is an increase in the overall price level that continues over some significant period of time. Such periods are known as periods of sustained inflation.

Slide 3:

“Inflation occurs when the general level of prices and costs is rising – rising prices of bread, gasoline, cars; rising wages, land prices, rentals on capital goods”. - Professor Samuelson. “Process of a Steady and sustained rise in the prices”. - Milton Friedman “ Inflation is a state in which the value of money is falling or prices are rising”. - Crowther “The obvious definition of inflation is that inflation is a rising price level”. - Edward Shapiro

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“Inflation is a self-perpetuating and irreversible upward movement of prices caused by excess of demand over capacity to supply”. - Emile James “Inflation consists of a process of rising prices”. - A.C.L.Day “Inflation is a general and continuing increase in prices. This does not imply that all prices are increasing, some prices may even be falling, the general trend must be upward. The rise in prices must also be continuing; once and for all increases are executed”. - Michael R. Edgmand

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TYPES OF INFLATION On the basis of its rate, inflation is classified as : [I] Creeping Inflation [II] Walking Inflation [III] Running Inflation [IV] Hyper Inflation 2. On the basis of its causes, inflation is classified as : Demand-pull inflation Cost-push inflation

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DIAGRAM Y D C % rise Hyper Running in Inflation Inflation B Price Level Walking Inflation A Creeping Inflation O Time X

Characteristics of Inflation :

Characteristics of Inflation The quantity of money is increasing but the production is static. The quantity of money is stable but the production is declining. The quantity of money is declining and the production is also declining but decline in production is higher than the decline in the quantity of money. The quantity of money is increasing and the volume of production is declining. The quantity of money is in excess of demand. The quantity of money as well as production is increasing but rate of increase in production is lesser than the rate of increase in the quantity of money.

CAUSES OF INFLATION:

CAUSES OF INFLATION INCREASE IN MONEY INCOME Government Policy Credit Policy of Bank Increase in Velocity of Money Deficit Financing Natural Factors Post-War Economy Commercial Policy Increasing costs of Production Increase in investment

LOW PRODUCTION:

LOW PRODUCTION Laws of Return Scarcity of Commodities Taxation Policies Commercial Policies of Government Inefficiency of Administration Industrial Unrest Technological Change Growth in Population

EFFECTS OF INFLATION:

EFFECTS OF INFLATION Effects on Production Reduction in Saving Flight from Domestic Currency Hinders Foreign Capital Misallocation of Resources Deterioration in the Quantity of Good Produced Changes in the System of Transaction Reduction in Production

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Effects on Income Distribution Debtors and Creditors Wages and Salary Earners Producers Investors Farmers OTHER EFFECTS Government Balance of Payments Exchange Rate Collapse of Monetary System Social Political

MEASURES TO CONTROL INFLATION:

MEASURES TO CONTROL INFLATION [I] Monetary Measures Bank Rate Policy Variable Reserve Ratio Open Market Operation Demonetization of Currency Issue of New Currency

Fiscal Measures:

Fiscal Measures Government Expenditure Increase in Taxes Public Borrowing Debt Management Surplus Budgets A Suitable Price Income Policy

Price and Wage Control:

Price and Wage Control Price Control and Rationing Wage Control

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