12/04/23 10:37 MG 667 Economic Environment & Policy 1

INFLATION: Good for a Growing Economy

Team 10

07927802 Avinav Goel

07927838 Varghese Eappen

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INTRODUCTION

What is Inflation Indices – WPI/CPI Deflation Disinflation Hyper-Inflation Stagflation ‘Growing Economy’

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Why is some INFLATION good

‘Downward Rigidity’ of nominal wages Workers’ reluctance to accept cuts 2% wage cut in ‘0 inflation’ ~ 3% raise in 5%

inflation Real wage>equilibrium implies higher

unemployment ‘Sticky Downward’ Prices

Tend to creep upwards- ‘0 inflation’ punishes other sectors

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Why is some INFLATION good

Stimulates economy in short run Encourages spending- Keynes Promotes consumption Hidden risk pressure- invest your savings !!

Central bank’s tool to regulate Control of money supply & CRR MV=PY

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Why is some INFLATION good

Phillips Curve: Trade-off between inflation & unemployment Increase Aggregate

Demand Higher Output (Lower

Unemployment) Higher Price level

(Higher Inflation)

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Thank You

Queries….