Macro Ppt Recovered]

8/7/2019 Macro Ppt Recovered]

1/21

INFLATION

Presented to

Prof. B. K. Pandey

Presented by

Abhisek Pradhan

Asish Taru Saha

Girija P. NandiSantosh Kr. Choudhary

Soumitra Kr. Das


2/21

DEFINATION OF INFLATION

In economics, inflation is a rise in the general

level of prices of goods and services in an

economy over a period of time.


3/21

HISTORY

Increases in the quantity of money or in theoverall money supply have occurred in manydifferent societies throughout history,changing with different forms of moneyused.

From the second half of the 15th century tothe first half of the 17th, Western Europeexperienced a major inflationary cycle

referred to as the "price revolution", withprices on average rising perhaps sixfoldover 150 years.


4/21

HISTORY of Inflation contd

INFLATION RATES AROUND THE WORLD IN 2009


5/21

MEASURES OF INFLATION

Inflation is usually estimated bycalculating the inflation rate of a priceindex, usually the Consumer Price Index.

Other ways of measuring price inflationare as follows

Producer price indices

Commodity price indices

Core price indices

GDP deflator

Asset price inflation


6/21

Annual inflation rates in the United States from 1666 to 2004

MEASURES OF INFLATION

contd


7/21

Causes of Inflation

There are two types of consecutive theories areavailable in the market.

Quantity theory:

The quantity theory of inflation rests on the quantity

equation of money, that relates the money supply, its velocity,and the nominal value of exchanges. Adam Smith and DavidHume proposed a quantity theory of inflation for money, anda quality theory of inflation for production.

Quality theory:

The quality theory of inflation rests on the expectation

of a seller accepting currency to be able to exchange thatcurrency at a later time for goods that are desirable as abuyer.


8/21

Causes of Inflation contd

THEBANK OFENGLAND, CENTRALBANK OFTHEUNITED KINGDOM,MONITORS CAUSES

ANDATTEMPTSTO CONTROLINFLATION


9/21

Theories of Inflation

Keynesian View Keynesian economic theory proposes that money

supply dont directly affect prices. The supply of

money is a major, but not the only, cause ofinflation.

There are three types of inflation

Demand-pull inflation

Cost-push inflation

Built-in inflation


10/21

Theories of Inflation contd.

Monetarist View:

Monetarists believe the most significant factor influencinginflation or deflation is how fast the money supply grows orshrinks.

According to the famous monetarist economistMilton

Friedman, Inflation is always and everywhere a monetaryphenomenon.

This theory begins with the equation of exchange:

M.V=P.Q

where

M is the nominal quantity of money.

Vis the velocity of money in final expenditures;Pis the general price level;

Qis an index of the real value of final expenditures;


11/21

Theories of Inflation contd.

Austrian view:

The Austrian School asserts that inflation is an increasein the money supply, rising prices are merely consequencesand this semantic difference is important in defininginflation.

Real bills doctrine:Within the context of a fixed specie basis for money, one

important controversy was between the quantity theory ofmoney and the real bills doctrine (RBD).

Anti-classical or backing theory:

Another issue associated with classical politicaleconomy is the anti-classical hypothesis of money, or"backing theory".


12/21

Impacts of Inflation

General:

An increase in the general level of prices

implies a decrease in the purchasing powerof the currency. The effect of inflation is not

distributed evenly in the economy, and as a

consequence there are hidden costs to some

and benefits to others from this decrease inthe purchasing power of money.


13/21

Impacts of Inflation contd

Negative:

Cost-push inflation

Hoarding

Hyperinflation

Allocative efficiency

Shoe leather costMenu costs

Business cycles

Positive:

Labor-market adjustments

Room to manueverMundell-Tobin effect

Instability with Deflation

FinancialMarket Inefficiency with Deflation


14/21

Inflation in INDIA

India has been the cynosure for the past fewyears in the global economic arena owing to itschanging inflation patterns. Between the fiscalyear 2004-05 and 2007-2008, India hadexperienced an average growth rate of morethan 9%.

In 2008 industry bodies, policy makers were allworried with the steadily-mounting inflation.

Inflation in India actually fell below 1% duringthe third week of March, 2009.


15/21

Inflation in INDIA statistics

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009 10.45 9.63 8.03 8.70 8.63 9.29 11.89 11.72 11.64 11.49 - -

2008 5.51 5.47 7.87 7.81 7.75 7.69 8.33 9.02 9.77 10.45 10.45 9.70

2007 6.72 7.56 6.72 6.67 6.61 5.69 6.45 7.26 6.40 5.51 5.51 5.51

2006 4.39 5.31 5.31 5.26 6.14 7.89 6.90 5.98 6.84 7.63 6.72 6.72


16/21

Controlling inflation

A variety of methods have been used in

attempts to control inflation. Monetary policy

Fixed exchange rates

Gold standard

Wage and price controls

Cost-of-living allowance


17/21

Monetary policy

THEU.S.EFFECTIVEFEDERALFUNDSRATECHARTEDOVER50 YEARS


18/21

Fixed exchange rate


19/21

Gold Standard

Under a gold standard, paper notes convertible into pre-set, fixed quantities of gold


20/21

American wage and price

control office


21/21

Macro Ppt Recovered]

Documents

Transcript of Macro Ppt Recovered]