Inflation and Unemploment Som and Deep

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Inflation and Unemployment in

India


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INFLATION Inflation is nothing more than a sharp

upward rise in price level.

Too much money chasing, too few goods.

Inflation is a state in which the value of money

is falling i.e. price are rising.

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As the cost of goods and services increase, the valueof a currency is going to go down because you won'tbe able to purchase as much with that currency asyou could have last month or last year.


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CAUSES OF INFLATION

Demand pull inflation

Cost push inflation

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Demand-Pull Inflation


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Demand-pull inflation

inflation caused by increases in aggregate

demand due to increased private and

government spending, etc.

Demand inflation is constructive to a faster

rate of economic growth since the excess

demand and favorable market conditions will

stimulate investment and expansion.


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Cost-Push Inflation


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Cost-Push Inflation

Cost-push inflation basically means that prices have

been pushed up by increases in costs of any of the

four factors of production (labor, capital, land or

entrepreneurship) when companies are already runningat full production capacity.

With higher production costs and productivity

maximized, companies cannot maintain profit margins

by producing the same amounts of goods and services.

As a result, the increased costs are passed on to

consumers, causing a rise in the general price level

(inflation).


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HOW TO CONTROL INFLATION

Monetary Measures

Fiscal Measures

Other Measures

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Monetary Measures

Credit Control

Demonetization of Currency

Issue of New Currency

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Fiscal Measures

Reduction in Unnecessary Expenditure

Increase in Taxes

Increase in Savings

Surplus Budgets

Public Debt

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OTHER MEASURES

To Increase Production

Rational Wage Policy

Price Control

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How is it Measured?

Consumer Price Index

Wholesale Price Index

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Consumer Price Index CPI is a measure estimating the average price of

consumer goods and services purchased byhouseholds.

CPI measures a price change for a constant marketbasket of goods and services from one period to thenext within the same area (city, region, or nation).

It is a price index determined by measuring the price

of a standard group of goods meant to represent thetypical market basket of a typical urban consumer.The percent change in the CPI is a measureestimating inflation.

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Wholesale Price Index WPI was published in 1902,and was one of the

economic indicators available to policy makers until itwas replaced by most developed countries by the CPI

market. index in the 1970. WPI is the index that is used to measure the change in

the average price level of goods traded in wholesalemarket.

Some countries (like India and The Philippines) useWPI changes as a central measure of inflation.However, India and the United States now report aproducer price index instead.

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Inflation rate

PI for a certain year - PI for a comparative year X 100

PI for a comparative year

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Inflation Rate in India The inflation rate in India was last reported to be

9.22 percent in July of 2011

Since the year of 1969 till the year of 2010, the

average inflation rate in India was 7.99 percent.

The inflation rate of the country reached an

historical high of 34.68 percent during the month

of September in the year of 1974. The lowest wasrecorded in the month of May in the year of

1976. It was reported to be as low as -11.31

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Chart on Inflation rate

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Year Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

2011 9.35 9.54 9.68 9.7 9.56 9.44 9.22

2010 16.2 14.9 14.9 13.3 13.9 13.7 11.3 9.88 9.82 9.7 8.33 9.47

2009 10.5 9.63 8.03 8.7 8.63 9.29 11.9 11.7 11.6 11.5 13.5 15

2008 5.51 5.47 7.87 7.81 7.75 7.69 8.33 9.02 9.77 10.5 10.5 9.7


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EFFECTS OF INFLATION

They add inefficiencies in the market, and

make it difficult for companies to budget or

plan long-term.

Uncertainty about the future purchasing

power of money discourages investment and

saving.

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EFFECTS OF INFLATION

There can also be negative impacts to tradefrom an increased instability in currencyexchange prices caused by unpredictable

inflation. Higher income tax rates.

Inflation rate in the economy is higher than

rates in other countries; this will increaseimports and reduce exports, leading to adeficit in the balance of trade.

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EXAMPLE of inflation

Increase in the price of wheat

Increase in the price of world oil Increase in the price of rice

Increase in the price of CNG (Compressed

Natural Gas)

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Increase in the money supply. Decrease in the demand for money.

Decrease in the aggregate supply of goodsand services.

Increase in the aggregate demand for goods

and services.

Factors affecting inflation


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Unemployment

Unemployment

is a situation that exists when people who are willing andable to work cannot get a job

Full unemployment

exists when the number of jobs available in a economy isequal to or greater than the number of people activelyseeking work.

Under employment

exists when workers are carrying out jobs for which they

are over- qualified, that is they are not using their full skillsand abilities or when workers are employed part-time,even though they are available for full-time employment orwhen workers in a planned economy are undertaking jobsthat would not exists in a free market


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Sources of Unemployment

Frictional

Seasonal Structural

Cyclical


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Unemployment

Structural Unemployment

is unemployment that exists when in the long

term the pattern of demand and productions

methods change and there is a permanent fall

in the demand for a particular type of labor.

There is a mismatch between skills and the

jobs available


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Unemployment

Frictional (Search) Unemployment

is the unemployment that exists when people have lefta job and are in process of searching for another job

Seasonal Unemploymentis unemployment that exists when people are out ofwork because their usual job is out of season

Cyclical Unemployment

is unemployment that exists when there is insufficientaggregate demand in the economy and real wages donot fall to compensate for this


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Unemployment

Real Wage Unemployment

is unemployment that exists when real wages

(wages adjusted for inflation) in the economy

get pushed up above their equilibrium, either

by the government or by trade unions


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40 Million Unemployed with anUnemployment Rate of 9.4% The survey was conducted in 28 States

It estimates that the population of the country

is 1182 million with 63.5% in the working ageof 15 59 years, however, not everyone who

is in the working age is interested in joining

the work force, so the worker population ratio

is much lower.

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The overall unemployment rate is 9.4%

It is split out as 10.1% in rural areas, and 7.3%

in urban areas.

359 persons per 1,000 are either working or

interested to work

out of an estimated population of 1,182

million 424 million persons are either

employed or are interested in working.

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Contd...

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Females, the unemployment rate is

8%, whereas for females the

unemployment rate is 14.6%. The ruralunemployment rate is 10.1% and the

urban unemployment rate stands at

7.3%


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Cont...

The unemployment rate of 9.4% means

that out of those 359 persons perthousand, or 424 million people there

are 9.4% or about 40 million who were

unemployed. Here are the numbers inmillions.

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Unemployment chart

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Inflation and Unemploment Som and Deep