INFLATION

Meaning

Inflation is associated with high prices which causes decline in purchasing power or

value of money.

Crowther defines inflation as “a state in which the value of money is falling i.e. prices

are rising prices rise though is only a symptom, of the disease – inflation and not the

cause”.
 CHARACTERISTICS OF
INFLATION

1. Inflation is a dynamic process, which can be observed only over a more or less lengthy

period.

2. Inflation is always associated with rise in prices

3. Inflation is a monetary phenomenon i.e. associated with excessive money supply

4. Cyclical movement is not inflation

5. Excess demand in relation to the supply of everything is the essence of inflation.

 Causes of Inflation

a) An increase in the demand for goods and

services in the country

b) A decrease in the supply of goods in the

economy.
 DEMAND SIDE
1. Increase in money supply
2. Increase in Public Expenditure
3. Deficit financing
4. Increase in Population
5. Increase in exports
6. Black Money:
7. Paying off debts
 SUPPLY SIDE
1. Production lags
2. Speculation
3. Natural Calamity
4. War
5. Gestation Period
6. Imported Inflation
 ECONOMIC EFFECTS OF
INFLATION
1. Effects on Production
2. Effects on Distribution
i) Debtor and creditor
ii) Business community
iii) Fixed Income Group
iv) Investors
v) Farmers
vi) Balance of payment
 SOCIAL AND POLITICAL
EFFECTS OF INFLATION
1. Rise in inequalities of income

2. Favours black marketers

3. Encourages speculation

4. Quality of goods deteriorates

5. Political effect
 REMEDIES TO CONTROL
INFLATION
1. Monetary Policy

a) Increase in Bank rate

b) Open market operations

c) Varying reserve ratio

d) Selective measures
 REMEDIES TO CONTROL
INFLATION
2. Fiscal Policy
a) Increase in taxes
b) Reduction in public expenditure
c) To incur public debt
d) Delay in the payment of old debts
 REMEDIES TO CONTROL
INFLATION
3. Other Measures

a) Increase in Production

b) Rationing

c) Price control

d) Imports of same of the commodities can be curtailed