Demand Included Inflation :-
This represents a situation where the basic factor at work is the increase in demand for resources either from the Government or the Enter preneurs or the Households.The result is that the pressure of demand is such that of output.If for example,is a situation of full employment,the government expenditure or private investment goes up this bound to generate an inflationary pressure in the economy.
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Meaning :-
By Inflation ,in ordinary language,we mean a process of rising prices.However,when discussing inflation,we are thinking of a persistent in prices rather than a once for all rise in prices.A rise in prices is one of the indicators of inflation rather than being its cause.
There are three main features of inflation.Something deliberate policies are pursued to prevent price rise in the present.But it is only a temporary muzzling of the inflationary forces.The se forces are in the meantime accumulating and are bound to burst in future.Ultimately ,the inflationary pressures exert themselves in full strength. |
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Inflationary process :-
Basically ,inflation represents a situation where by the pressure of aggregate demand for goods and services exceeds the available supply of output (both being counted at the prices ruling at the beginning of a period).In such a situation ,the rise in price level is a neutral consequence .Now this disparity between aggregate demand and supply may be the result of more than one force at work at a time.
Causes of inflation :-
The cause of inflation is simply mismanagement of in economic policy which are given below__________^^^>>>
Cost-Included on Wage-Included Inflation :-
We can visualise a situation where even though there is no increases in aggregate demand prices may still rise .This may happen if the costs,particularly the wage costs ,go on rising,Now as the level of employment increases,the demand for workers rises progressively.so that the bar-gaining position of the workers is enhanced;To exploit this situation,they may ask for an increase in wage rates,which are not justifiable either on grounds of a prior rise in productivity or of cost of living.the employers in a situation of high demand and employment are more agreeable to concede to this wage claims,because they hope to pass on these rises in costs to consumers in ht shape of rise in prices.If this happens we have another inflationary factor at work.
Merits and Demerits of inflation :-
Inflation has the ability to release resources for development by the redistribution of income between classes within the private sector and from the private sector of the government .but inflation is not without its dangers.
The most serious threats to growth from inflation comes from the effect on the balance of payments.If foreign exchanges is a scares resource ,and from the possibility that inflation may discourage voluntary savings ,productive investment and the use of money as a medium of exchange .It become excessive.
The most serious threats to growth from inflation comes from the effect on the balance of payments.If foreign exchanges is a scares resource ,and from the possibility that inflation may discourage voluntary savings ,productive investment and the use of money as a medium of exchange .It become excessive.
Inflation clearly reduces the purchasing power of money .If inflation becomes excessive not only may voluntary savings be discouraged but the use of money as a medium of exchange may be discouraged.Involving society in real resource costs and welfare losses.there are also the distributional consequences to consider,These are difficult to assess .All that can be saidwith some confidence is the following.Debtors benefit at the expense of creditors:profit earnes gain at the expense of wage earners in time of demand inflation and lose at the expense of wage earners in time wage/inflation :real-asset holders probably gain relative to maney asset;holders:the strong (in a bargaining sense)probably gain relative to the weak and young gain relative to the old who lend to live on fixed contactual incomes.
Having considered some of the potential dangers of inflation,it can be said that there is plenty of room for disagreement over wheather inflation is a help or a hindrance to development.Some argue that if that can help to raise the level of real savingand encourage investment,whike other maintain that it is liable to stimulate the "wrong" type of investment and that inflation may get out of control,and retars development through its advertise effects on productive investment and the balance of payments.A lot clearly depends on the type of inflation under discussion and its rate ,What is badly needed is a substantial body of empirical evidence.
Having considered some of the potential dangers of inflation,it can be said that there is plenty of room for disagreement over wheather inflation is a help or a hindrance to development.Some argue that if that can help to raise the level of real savingand encourage investment,whike other maintain that it is liable to stimulate the "wrong" type of investment and that inflation may get out of control,and retars development through its advertise effects on productive investment and the balance of payments.A lot clearly depends on the type of inflation under discussion and its rate ,What is badly needed is a substantial body of empirical evidence.
control of inflation :-
Inflation is a complex phenomenon.There is no one sovereign remedy to combat it. One the other hand,measures have to be taken on several fronts,monetary ,and non-monetary to fight it.All these measures have one common aim.They aim at reducing aggregate monetary expenditure taking the available output as given ,Broadly speaking ,the anti-inflationary measures can be classified as Under :-
(i) monetary measures.
(ii)Fiscal measures.
(iii)Physical Measures.
Monetary Measures :-
The best remedy for fighting inflation is to reduce the aggregate spending,Monetary policy can help in reducing the pressure of demand .Briefly speaking ,monetary policy works by controlling the cost and availability of credit.During inflation ,the central Bank raise the cost of borrowing and reduce the credit creating capacity of the commercial banks.This will make borrowing more costly than before and there by the demand of fund will be reduced similarly with a reduction in their credit creating capacity.The banks will be more cautious in their lending policies .The result will be a fall in the volume of spending.
(ii) Fiscal Measures :-
The two wings of fiscal policy are government revenues and government expenditures.The Government fiscal policy can contribute to the control of inflation either by reducing private spending by increasing the taxes on private sector or by decreasing govt. expenditure,or combining both the elements.If private spending tends to be excessive ,the government can moderate the inflationary pressure by reducing its own expenditure.
(iii) Physical or Non-monetary Measures:-
Apart from the monetary and fiscal measures.,it becomes necessary also-to resort to same measures of non-monetary measures.But it should be clearly understood that such measures are much less practicable than the monetary fiscal one s.Several causes physiological institutional ,technological and other non economic causes hinder the success of the non me-notary measures.Hence ,full reliance can not be placed on such measures .They can only be considered as supplementary to more effective measures.