impacts of infaltion on economy

7/30/2019 Impacts of Infaltion on Economy

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introduction

Impacts Of Inflation On Economy

By Vidula PatilRoll No. 540

Batch No. 23

Div. E


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Impacts Of Inflation On Economy


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To assure that the public gets back their money,

governments like USA provide for Treasury Inflation-Protected

Securities (TIPS) that charge lesser interest rates. Therefore

The treasuries are adversely affected.

Purchasing Power of currency:One of the most immediate effects of inflation is the

decrease in the purchasing power of currency owing

to the decrease in the relative value of currency.

Treasury Of The Nation:

Allocation of Money:Affects the dealing of lenders and borrowers because

the loan sanctioned before the inflation period are

paid back later in the form of inflated money, i.e

money with lesser relative value.

Time Value of Money :Time Value of Money is most commonly expressed in

terms of Interest it receives and inflation is the principal

component affecting The rates of interests.


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Unanticipated inflation is bad because it

makes the economy behave like a giantcasino.

Gains and losses occur because ofunpredictable changes in the value of

money. If the value of money varies unpredictably

over time, the quantity of goods andservices that money will buy will also

fluctuate unpredictably. Resources are also diverted from

productive activities to forecasting inflation.

Unanticipated inflation leads to :a Redistribution of income borrowers and

Why is inflation bad?


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India:A glimpse of inflation in India

Inflation in India generally occurs as a consequence of global traded commodities and

the several efforts made by The Reserve Bank of India to weaken rupee against dollar.

This has been regarded as the root cause of inflation crisis rather than the domestic

inflation

Due to sharp rise in the prices of meat, vegetables, milk and pulses, inflation has

reached 7.23% in April 2012.The value was 9.74% in April 2011.

India is deeply intolerant of high inflation accounting

to very conservative policy makers. The highest

inflation that India has ever seen in the past twocenturies was 53.8%


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Zimbabwe:A special reference.

Zimbabwe's inflation soared to a record

high of 89,700,000,000,000,000,000,000%

in Mid-2008

As of 2012, Zimbabwe still has no national

currency; currencies from other countries

are used.

The Reserve Bank of Zimbabwe issued a

ZWD 10,000,000 note in January 2008,roughly equivalent of 4 US dollars.


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Control Measures


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Monetary Policy:

During Inflation Central Bank:

Sells securities in Open Market Operation

Increase the bank rate known as Dear Money Policy (currently 6% in India)

Increase the Cash Reserve Ration

Increase the Statutory Liquidity Ratio

Increase the Repo rate (currently 7.50% in India)

Increase in Reverse repo Rate (currently 6.50% in India)


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Fixed Exchange Rates:Under a fixed exchange rate currency regime, a country's

currency is tied in value to another measure of value such

as gold. In this monetary system a region's common media

of exchange are paper notes that are normally freelyconvertible into pre-set, fixed quantities of gold.

Fiscal Policy:Fiscal policies are effective in increasing the leakage rates from the circular income flow,

thereby rejecting all further additions into this particular flow of income.


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Present Scenario

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Questions,Anyone?

Courtesy

1. En.Wikipedia.org

2. CIA The World Factbook

3. Answers.yahoo.com

4. General economics (CPT)


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impacts of infaltion on economy

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