STAFF DEVELOPMENT PROGRAMME

-POWER POINT PRESENTATION

BY Meenu Sharma

 Inflation

is a sizeable and a rapid increase in the general price level. It is generally associated with rapidly rising prices which cause a decline in the purchasing power of money.

 Prof.

Crowther, as a state in which the value of money is falling i.e. prices are rising. Prof. Kemmerer, Inflation is too much money chasing too few goods. Prof. Keynes, the rise in the price level after the point of full employment is true inflation.

Factors causing an increase in demand: Increase in public expenditure. Increase in private expenditure. Increase in exports. Reduction in taxation. Repayment of internal debts. Deficit financing.

Factors of causing a decrease in demand: Shortage of factors of supply of production Industrial disputes Natural calamities Operation of diminishing returns. Hoarding by traders. Lop-sided production

 Demand

inflation: it is caused by an increase in the aggregate effective demand for goods and services. Cost inflation: also known as supply inflation. It is caused by an increase in wages , an increase in the profit margins, and imposition of heavy commodity taxes.

Effects on production :production will decline, drive out the foreign capital already invested, serious deterioration in the quality of goods produced. Effects on distribution: results in redistribution of income and wealth in favor of rich.

Other effects : Fall in consumer demand. Fall in investment demand. Fall in foreign demand.

 Increased

rediscount rates. Sale of government securities in the open market. Consumer credit control. Higher reserve requirement. Reduce government expenditure. Public borrowing. Debt management. Expansion of output.

 It

was given by William Phillips in 1958 The Phillip's curve is a relation between inflation and unemployment.

5 % = zero inflation

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5 %

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 There

exists a stable relationship between the variables. The relationship has not substantially changed for over 100 years. Negative, nonlinear correlation. Wages remain stable/stationary ( =0) when unemployment is 5%.

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From the dispersion of the data points, Phillips concluded that there was a countercyclical loop: Money wages rise faster as du/dt decreases, Money wages fall slower as du/dt increases Implies an inflationary bias, and is consistent with sticky wage theory.

dw w

faster

slower u

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