Preview

Inflation, Causes and Solutions

Better Essays
Open Document
Open Document
1365 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Inflation, Causes and Solutions
INFLATION :
A sustained rise in the prices of commodities that leads to a fall in the purchasing power of a nation is called inflation. Although inflation is part of the normal economic phenomena of any country, any increase in inflation above a predetermined level is a cause of concern.
How is inflation measured
Inflation in India is measured through a WPI ( wholesale price index ) . In India, the wholesale price index (WPI), rate consisted of three main components - primary articles, which included food articles, constituting 22% of the index; fuel, constituting 14% of the index; and manufactured goods, which accounted for the remaining 64% of the index

Today this is around 8 % in india which is very high . Last year this touched double digit figures at 10% .

Cause of inflation - General theory * printing of more money by the government, * a rise in production and labor costs, * high lending levels, * a drop in the exchange rate Demand Pull theory a rise in prices due to * increase in demand in excess of the supplies * An increase in the quantity of money in circulation relative to the ability of the economy to supply leads to increased demand, thereby fuelling prices. The case is of too much money chasing too few goods. * An increase in demand could also be a result of declining interest rates, * a cut in tax rates or increased consumer confidence.

The Cost Push theory, Inflation occurs due to increase in production cost . The cost of production can rise because of * rising labor costs * when the producing firm is a monopoly or oligopoly and raises prices * cost of imported raw material rises due to exchange rate changes, * external factors, such as natural calamities * an increase in the economic power of a certain country. * An increase in indirect taxes

A classic example of cost-push or supply-shock inflation is the oil crisis that occurred in the 1970s, after

You May Also Find These Documents Helpful

  • Powerful Essays

    Economic Forecast Paper

    • 1557 Words
    • 7 Pages

    Inflation can be defined as the overall general upward price movement of goods and services in an economy (BLS, 2007). It is a continual rise in price levels and, subsequently, purchasing power is falling. The Consumer Price Index (CPI) measures inflation as experienced by consumers in their day-to-day living expenses and is separated into two groups or populations of consumers: The CPI for All Urban Consumers (CPI-U) and the CPI for Urban Wage Earners and Clerical Workers (CPI-W).…

    • 1557 Words
    • 7 Pages
    Powerful Essays
  • Satisfactory Essays

    Another factor which would cause demand-pull inflation would be a boost in consumer confidence such as the one which occurs when an economy reaches the recovery stage after emerging from recession. Due to the boost in consumer confidence and increasing amount of money is spent on goods and services which in turn raises the demand and thus firms increases prices, leading to inflation. Several further factors which also cause demand-pull inflation are a decrease in indirect taxation, rapid…

    • 634 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Demand pull inflation is caused when there has been excessive growth in AD. An example of demand pull inflation was in the late 1980s in the UK as shown in the diagram below.…

    • 715 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Inflation in the Uk

    • 1025 Words
    • 5 Pages

    Inflation is the general increase in prices of goods and services in an economy. When the purchasing power falls, currencies tend to lose some of its value. A measure of price in inflation is the inflation rate; it’s the annualized percentage in a general price index (also known as CPI) over time. Inflation is very infrequent and the price level is as likely to fall, as it is to rise.…

    • 1025 Words
    • 5 Pages
    Good Essays
  • Good Essays

    Inflation Rises

    • 518 Words
    • 3 Pages

    In economics, inflation is a rise in general level of prices of goods and services in an economy over a period of time. When the general price level rises , each unit of currency buys fewer goods and services. It is a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate. As inflation rises, every dollar we own buys a smaller percentage of good or service. The value of a dollar does not stay constant when there is inflation. The value of a dollar is observed in terms of purchasing power. When inflation goes up, there is a decline in the purchasing power of money.…

    • 518 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Inflation is the rate at which the general level of prices for goods and services is rising.…

    • 275 Words
    • 2 Pages
    Good Essays
  • Good Essays

    CPI (Consumer Price Index) is a measure of the average of prices paid by the urban consumers for a fixed basket of consumer goods and services and is calculated monthly by the Bureau of Labor Statistics (BLS) ( Parkin 8th Edition, Economics, pp. 514). A list of annual inflation rate at Statistics Singapore website shows an increase of inflation rate from 2005 to 2007.(2)…

    • 1273 Words
    • 6 Pages
    Good Essays
  • Good Essays

    Inflation in India

    • 466 Words
    • 2 Pages

    There are various factors that contribute to this rise in prices. Some are natural factors like unfavorable weather conditions which affect the food production and lead to the shortage of commodities in the market. With more money chasing fewer goods, the prices take to the wings.…

    • 466 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    Inflation in India

    • 1374 Words
    • 6 Pages

    India 's inflation has been lower compared with other emerging markets. Inflation WPI and CPI-Industrial Workers (CPI-IW) have averaged 5.3% and 6.8%, respectively, over the last 15 years compared with 11.2% average (CPI) for emerging markets. Double-digit inflation is not the norm. Indeed, over the last 10 years on an annual average basis, WPI inflation crossed 10% not once while CPI-IW crossed 10% only one time.…

    • 1374 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    n 2010-11, inflation was at 9.6% (official) which makes it the highest since 1994-95, when it was 12.6%.…

    • 822 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Inflation and Unemployment

    • 2481 Words
    • 10 Pages

    Demand Pull Inflation (Demand-side Theories of Inflation) Inflation is caused by an increase in any of the components of aggregate demand i.e., increase in C or I or G or (X-M)…

    • 2481 Words
    • 10 Pages
    Good Essays
  • Satisfactory Essays

    • Ever since industrialized nations moved away from the gold standard during the past century,…

    • 843 Words
    • 4 Pages
    Satisfactory Essays
  • Good Essays

    MB0042 MANAGERIAL ECONOMICS

    • 5177 Words
    • 16 Pages

    Description: Inflation occurs due to an imbalance between demand and supply of money, changes in production and distribution cost or increase in taxes on products. When economy experiences inflation, i.e. when the price level of goods and services rises, the value of currency reduces. This means now each unit of currency buys fewer goods and services.…

    • 5177 Words
    • 16 Pages
    Good Essays
  • Powerful Essays

    Inflation

    • 1754 Words
    • 5 Pages

    The government control measures, all over the world, keep business cycles under control. What has gone nearly uncontrolled over the time is the problem of almost continuous increase in the general price level (this is the problem of inflation). The problem of inflation got accentuated since the early 1970s. It emerged as the most intractable economic problem for both theoreticians and policy-makeovers all over the world. Inflation has been a common problem of the developed and the developing economies.…

    • 1754 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    Consumer Price Inflation

    • 648 Words
    • 3 Pages

    Consumer Price Index: (CPI) The cost of the basket when measuring inflation at a given time expressed relative to a base year.…

    • 648 Words
    • 3 Pages
    Good Essays

Related Topics