IBPS PO | IBPS Clerk | IBPS RRB | Latest Bank Jobs

Get free study material for IBPS PO, IBPS Clerk and IBPS RRB exams along with
Banking awareness #10: Inflation
IBPS Recruitment news for IBPS Exam 2015
http://www.ibpsexamadda.org.in
Categories : Daily Banking Awareness Capsules

Date : June 12, 2015

We all are fond of buying our favorite goods from the market and sometimes we are willing to pay any
price for them. However, when the prices of our favorite goods rise suddenly we often find ourselves
complaining. This sudden rise in prices of commodities is called as inflation and it is a very
significant topic for your banking awareness.

IBPSExamAdda.org.in is here with its latest banking awareness 2015 material and banking awareness
PDF download available for you. We leave no stone unturned to help you in improving your banking
awareness.

Banking Awareness: Significance of Inflation

1/3
IBPS PO | IBPS Clerk | IBPS RRB | Latest Bank Jobs
Get free
As said study
earlier, material
Inflation for IBPS
is a sudden PO,
rise in the IBPS
price ofClerk
goods;and
it is IBPS RRB
a situation exams
where along
the same with of
amount
money Recruitment
IBPS newsthan
can buy lesser goods for before.
IBPS Exam
However, 2015
a mild inflation is necessary for the economy as it
http://www.ibpsexamadda.org.in
encourages the producers to produce more. However, if there was no rise in prices then the producers
would not be encouraged to produce which would be disastrous for the economic growth of the country.
Also the employment levels would fall as if the producers do not wish to produce more they would stop
hiring people for production and therefore there would be unemployment in the economy. Hence, a certain
level of inflation is necessary to keep the economy healthy.

Causes of Inflation

1. Increase in Demand:

When the demand of a commodity rises, its supply becomes less and therefore there is a rise in the price
of the commodity. As firms reach full capability, they increase the prices of goods which leads to inflation.

2. Increase in costs for the firm:

If there is an increase in costs of the firm such as that of raw material or labor then the firm passes on this
loss to the consumers. It increases the price of the product in order to cope up with the increased cost
price and hence there is a situation of inflation in the economy.

3. To increase firm’s profits:

When a company wishes to increase its profit margins it increases the prices of the commodities so that
there is more money received on the product and the profits are increased. If the prices of the
commodities rise, the situation of inflation prevails in the economy.

4. Increase in taxes:

If the government increases the taxes required to be paid by the company the cost of production for the
company will increase. Therefore the company would accommodate this cost of production in the price of
the commodity and the price of the commodity will increase causing inflation.

5. Printing of more money by the central bank:

If the central bank prints more money, then a situation of inflation is expected n the economy as printing
more money leads to an increase in the money supply in an economy and money supply plays a vital role
in determination of prices. Increased money supply to buy the same amount of goods would lead to a rise
in prices.

2/3
 IBPS PO | IBPS Clerk | IBPS RRB | Latest Bank Jobs
Get
Howfree study material
to control for IBPS PO, IBPS Clerk and IBPS RRB exams along with
Inflation?
IBPS Recruitment news for IBPS Exam 2015
http://www.ibpsexamadda.org.in

Click here for how does RBI control inflation article.

1. Reducing the rate of growth of population:

Inflation is caused by an increase in demand and therefore if there is less demand then it can control the
situation of inflation. Reducing the rate of growth of population is a vital way of controlling inflation as if
there are less people, the goods demanded would be less and therefore inflation can be controlled.

2. Cutting production costs:

If companies try to cut their cost of production then they can sell their products on a lower price, his will not
only lead to increased sales for the company but, it will also control inflation prevailing in the economy.

3. Increase in savings:

Increased savings on the part of the people would lead to lesser disposable income with them. When
people spend less, they will demand less and therefore the prices of the commodities will come down
thereby controlling inflation.

4. Increase in production:

Increased production would lead to excess supply and less demand thereby causing the price of the
goods to come down. Hence, by increased production, the problem of inflation can be combated.

We hope we gave you adequate information of the meaning, significance and causes of inflation
along with the steps to overcome it. Keep reading for more banking awareness knowledge and our
primary motto is to enhance your banking awareness for the upcoming IBPS exams.

All the best!

Powered by TCPDF (www.tcpdf.org)

3/3