An Assignment on

Inflation An Overview
submitted in the partial fulfilment of the course
titled ‘Macro Economics [BM111]’ for the
completion of BBA. LL.B. Course.

Submitted by:
Mohd Ayaz Raza
Enrolment No: 2200101530; 1st Semester

Submitted to:
Dr. Malik Gufraan Ahmed
Assistant Professor, Faculty of Law

Faculty of Law, Integral University, Lucknow

 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher Dr. Malik Gufraan
Ahmed Sir who gave me the opportunity to do this assignment; and also, for her exemplary
guidance, monitoring, and constant encouragement throughout the course of this assignment.
This assignment helped in doing a lot of research, and I came to know about so many new
things; I am really thankful to her.

Lastly, I thank the almighty, and my friends; their constant encouragement helped me a lot in
finalizingthis assignment within the limited time frame.

MOHD AYAZ RAZA

 Table of Content

Inflation ........................................................................................................................................... 4
Types of Inflation ............................................................................................................................ 4
Main Causes of Inflation ................................................................................................................. 4
Benefits of Inflation ......................................................................................................................... 5
Prevent of Inflation.......................................................................................................................... 5
Effects of a Rise in the Inflation Rate ............................................................................................. 5
The Inflation Rate Formula ............................................................................................................ 5
Calculate Inflation Rate .................................................................................................................. 6
Inflation
An economic measure called inflation shows how quickly prices for goods and services are
increasing overall. In the end, it demonstrates how the rupee's purchasing power has declined.
A percentage is used to measure it
This quantitative economic analysis calculates the rate of change in pricing for a range of
commodities and services across time. When a basket of products and services is chosen,
inflation shows how much the average price has changed. As a percentage, it is stated.
Increased inflation is a sign that the economy's buying power is declining.
This percentage shows the change from the prior period, either up or down. As inflation
increases, the value of money continues to decline, which can be a cause for concern.

Types of Inflation
Demand-Pull, Cost-Push, and Built-in inflation are the three different forms of inflation.
Demand-pull When demand for products or services exceeds supply by a significant margin,
inflation results. Price increases are the outcome of the supply and demand gap (a shortage).
Cost-push When the cost of production rises, inflation takes place. The cost of the product goes
up when input prices (such as labour, raw materials, etc.) rise.
Built-in inflation is the effect of anticipating future inflations. Greater salaries are needed to
cover the higher cost of living as a result of price increases. Therefore, high salaries lead to
higher manufacturing costs, which affect product pricing. Thus, the circle keeps turning.

Main Causes of Inflation

Monetary policy: It controls the amount of money available on the market. Inflation is caused
by an oversupply of money. Consequently, the currency's value fell.
Fiscal Policy: It keeps tabs on the economy's borrowing and expenditure. More borrowing
(debt) leads to higher taxes and more money being printed to pay off the debt.
Demand-pull Price increases are brought on by a discrepancy between supply and demand
(greater demand) (lower).
Cost-push inflation: An increase in the price of products and services as a result of rising
production costs.
Exchange rates: Foreign market exposure is based on the value of the dollar. The rate of
inflation is impacted by changes in the currency rate.
Benefits of Inflation
Despite being a worry for the economy, not everyone is negatively impacted by inflation. A
certain group of people benefit greatly from it. While inflation reduces some of the purchasing
power of consumers, it benefits investors.
If kept for a long period, investments in assets that are influenced by inflation will undoubtedly
pay off for investors. For instance, customers may be impacted by rising housing costs. Those
who have already purchased a home, however, will profit from capital growth.

Prevent of Inflation
The main tactic for preventing inflation is to alter monetary policy by altering interest rates.
The economy experiences less demand when interest rates are higher. As a result, there is less
economic growth and hence less inflation. Inflation can also be avoided by:
Inflation may be avoided by regulating the amount of money in circulation.
Increased income taxes may cause people to spend less, which would reduce demand and
inflationary pressures.
Long-term costs can be decreased by implementing policies to improve the economy's
efficiency and competitiveness.

Effects of a Rise in the Inflation Rate

More than just a decline in purchasing power might result from an increase in inflation.
Economic growth might result from inflation since it may be an indication of increasing
demand.
Costs might rise more as a result of inflation if workers want higher salaries to keep up with it.
As a result of the need for businesses to fire employees to cover costs, unemployment may rise
as a result.
If domestic inflation increases, domestic goods may lose some of their competitiveness. It
might devalue the nation's currency.

The Inflation Rate Formula

The difference between the initial and final CPIs, divided by the starting CPI, is the inflation
rate formula. The inflation rate is then obtained by multiplying the result by 100.
Rate of Inflation = (Initial CPI – Final CPI/ Initial CPI)*100
CPI= Consumer Price Index
Calculate Inflation Rate
The Consumer Price Index is used in the calculation of inflation (CPI). These procedures may
be used to determine inflation for any product.
Find out the product's rate at a previous time.
Identify the product's current rate.
Use the formula (Initial CPI - Final CPI/Initial CPI)*100 to calculate inflation. The rate of the
product in this case is CPI.
This indicates the product price's percentage increase or decrease. This can be used to contrast
the inflation rate over time.