Download (2) meaning,types, causes and measures to control inflation

SILVER OAK COLLEGE
OF ENGG. AND TECH.
TOPICS:
(1) DIFFERENCE BETWEEN
MICRO AND MACRO ECONOMICS
(2) MEANING,TYPES,
CAUSES AND MEASURES TO
CONTROL INFLATION.
SUBMITTED TO:
SHRUTA LADOLA
SUBJECT: Engineering Economics and
Management(EEM)
SUBMITTED BY: Mamta Arora
ENROLL NO.: 130770111004
DEPARTMENT: E.C
MICRO ECONOMICS
•
Microeconomics is the study of economics at
a smaller scale.
• It is the study of economics at an individual,
group or company level.
• It is a study of one particular unit rather than
all the units combined together.
• It focuses on issues that affect individuals
and companies such as supply and demand for
a specific product, the production that an
individual or business is capable of, or the
effects of regulations on a business.
MACRO ECONOMICS
• Macro economics is the study of large scale
economic issue.
• It is the study of a national economy as a
whole.
• It is the branch of the economics which studies
the economic behavior of not only one
particular unit, but of all the units combined
together.
• It aggregates all and study as a single unit.
• So,it is also called as “aggregative economics”
• It focuses on the issues that affect the
economy as a whole.
• For example, it include unemployment rates,
the gross domestic product of an economy,
and the effects of exports and imports.
MEANING OF INFLATION
• Inflation is the sustained increase in the
general price level of goods and services in an
economy over a period of time.
• When the price level rises, each unit of
currency buys fewer goods and services.
• So inflation reflects a reduction in the
purchasing power per unit of money-a loss of
real value in the medium of exchange and unit
of account within the economy.
• Inflation occurs due to an imbalance between
demand and supply of money, changes in
production and distribution cost or increase in
taxes on products.
• High prices of day to day goods make it
difficult for consumers to afford even the vasic
commodities in life.
• Price inflation is measured by the inflation
rate, which is calculated year on year basis.
TYPES OF INFLATION
• There are four different types of inflation:
1) Demand-pull inflation
2) Cost-push inflation
3) Pricing power inflation
4) Sectorial inflation
DEMAND-PULL INFLATION
• It occurs when the total demand for goods and
services in an economy exceeds the available
supply, so the prices for them rise in the market
economy.
• Every war produces this type of inflation because
demand for war materials and manpower grows
rapidly without comparable shrinkage elsewhere.
• Other types of inflation occur more readily in
conjunction with demand pull inflation.
COST PUSH INFLATION
• The cost of production rise, for one reason or
another, and force up the prices of finished
goods and services.
• Often a rise in wages in excess of any gains in
labor productivity is what raises unit costs of
production and thus raises prices.
• This is less common than demand-pull, but can
occur independently as well as in conjunction
with it.
PRICING POWER INFLATION
• It is also called “administrated price inflation”
• It occurs whenever businesses in general
decide to boost their prices to increase their
profit margins.
• It might be called oligopolistic inflation,
because it is oligopolies that have the power
to set their own prices and raise them when
they decide the time is ripe.
SECTORIAL INFLATION
• The term applies whenever any of the other three
factors hits a basic industry causing inflation.
• Since the industry in which inflation has occurred
is a major supplier to many other industries, the
price of their products also increases and hence
inflation also occurs in that industry.
• So it can be said that though inflation was started
in one sector, it has been propagated to other
sectors.
CAUSES OF INFLATION
1) Unfavorable agricultural production:
Indian agriculture is largely dependent on
monsoon.
In case of drought or famine the agricultural
production is adversely affected.
Due to this, price of agricultural as well as agrobased industrial products increases.
2) Hoarding:
Most of the wholesalers and businessman practices
hoarding of commodities which leads to inflation.
3)Deficit financing:
If the government resorts to deficit financing in
order to meet its developmental expenditure,
then it makes available funds for the growth
of economy.
4)Population and Black money:
Rapid growth of population causes inflation.
Tax is the most significant and major source of
public revenue.
It is a very important cause of rise in the basic
food prices in a developing country like India.
5) Upward revision of administered prices:
Commodities produced in the public sector have
government administration of price level.
The government keeps on raising prices in order to
compensate the losses.
6) Increase in indirect taxes:
Increase in indirect taxes like sales tax, VAT, service
tax etc. increases the cost of production for the
producers.
7) Increase in wage rates:
It causes the producers to raise the prices of their
goods to balance their profits.
MEASURES TO CONTROL INFLATION
(1) MONETARY MEASURES:
Monetary measures are taken by the
government in order to control inflation.
In India, it is implemented by Reserve Bank of
India.
Main tools of monetary measures of credit
control include Bank Rate Policy, Open
market Operations, Cash Reserve Ratio.
(2) FISCAL MEASURES:
Fiscal measures relates to public revenue and
public expenditure and matters related
thereto.
Important tools of fiscal measures are Public
Revenue and Public Expenditure.
The major sources from where public revenue is
generated include income tax, wealth tax,
excise duty and sales tax.
(3) OTHER MEASURES:
Other measures may be short term or long
term.
Short terms concerns with the distribution of
essential commodities on ration cards at
reasonable price.
Long term includes population and economic
planning.
Population planning is used to aware the people
about family planning.