What is Suppressed Inflation

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<ul><li><p>8/4/2019 What is Suppressed Inflation</p><p> 1/4</p><p>1. What is suppressed inflation?Ans:Existing inflation disguised by government price controls or other interferences in</p><p>the economy such as subsidies. Such suppression, nevertheless, can only be temporary because</p><p>no governmental measure can completely contain accelerating inflation in the long run. Also</p><p>called repressed inflation.</p><p>2. What is ratchet effect?Ans:Ratchet effect is an instance of the restrained ability of human processes to be reversed</p><p>once a specific thing has happened, analogous with the mechanical ratchet that holds the spring</p><p>tight as a clock is wound up. It is related to the phenomena offeaturitis and scope in the</p><p>manufacture of various consumer goods, and ofmission creep in military planning.</p><p>A 'Ratchet effect' can be seen in long-term trends in the production of many consumer goods.</p><p>Year by year, automobiles gradually acquire more features. Competitive pressures make it hardfor manufacturers to cut back on the features unless forced by a true scarcity of raw materials</p><p>(e.g., an oil shortage that drives costs up radically). University textbook publishers gradually get</p><p>"stuck" in producing books that have excess content and features. Airlines initiate frequent-flyer</p><p>programs that become ever harder to terminate. Successive generations of home appliances</p><p>gradually acquire more features; new editions of software acquire more features; and so on. With</p><p>all of these goods, there is ongoing debate as to whether the added features truly improve</p><p>usability, or simply increase the tendency for people to buy the goods .</p><p>3. What is MEC (marginal efficiency of capital)Ans:Annual percentage yield earned by the last additional unit of capital. It is also known</p><p>as marginal productivity of capital, natural interest rate, net capital productivity, and rate of</p><p>return over cost. The significance of the concept to a business firm is that it represents the market</p><p>rate of interest at which it begins to pay to undertake a capital investment. If the market rate is</p><p>10%, for example, it would not pay to undertake a project that has a return of 2 %, but any return</p><p>over 10% would be acceptable. In a larger economic sense, marginal efficiency of capital</p><p>influences long-term interest rates. This occurs because of the law of diminishing returns as it</p><p>applies to the yield on capital. As the highest yielding projects are exhausted, available capital</p><p>moves into lower yielding projects and interest rates decline. As market rates fall, investors are</p><p>able to justify projects that were previously uneconomical. This process is called diminishing</p><p>marginal productivity or declining marginal efficiency of capital.</p>http://www.businessdictionary.com/definition/inflation.htmlhttp://www.businessdictionary.com/definition/government.htmlhttp://www.businessdictionary.com/definition/price-control.htmlhttp://www.businessdictionary.com/definition/economy.htmlhttp://www.businessdictionary.com/definition/subsidy.htmlhttp://www.businessdictionary.com/definition/nevertheless.htmlhttp://www.businessdictionary.com/definition/governmental.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.investorwords.com/17668/long_run.htmlhttp://www.businessdictionary.com/definition/repressed-inflation.htmlhttp://en.wikipedia.org/wiki/Ratchet_(device)http://en.wikipedia.org/wiki/Featuritishttp://en.wikipedia.org/wiki/Mission_creephttp://en.wikipedia.org/wiki/Mission_creephttp://en.wikipedia.org/wiki/Featuritishttp://en.wikipedia.org/wiki/Ratchet_(device)http://www.businessdictionary.com/definition/repressed-inflation.htmlhttp://www.investorwords.com/17668/long_run.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.businessdictionary.com/definition/governmental.htmlhttp://www.businessdictionary.com/definition/nevertheless.htmlhttp://www.businessdictionary.com/definition/subsidy.htmlhttp://www.businessdictionary.com/definition/economy.htmlhttp://www.businessdictionary.com/definition/price-control.htmlhttp://www.businessdictionary.com/definition/government.htmlhttp://www.businessdictionary.com/definition/inflation.html</li><li><p>8/4/2019 What is Suppressed Inflation</p><p> 2/4</p><p>4. What Is Autonomous And Induced Investment?Ans:Autonomous investment is motivated by service motive and is independent of marginofprofit. It is income inelastic and as such, it is not influenced by variation in income. It is notprofit oriented and accordingly, it remains unaffected by the variation in income, price, wage,</p><p>rent, etc.</p><p>Autonomous investment is made by the public bodies or by the private bodies (organization or</p><p>individuals). Erection of street light poles, by the municipal bodies, construction of high ways</p><p>and public buildings by the government and construction of private schools, buildings, charitable</p><p>houses etc. Private organizations are good examples of autonomous investment.</p><p>Induced investment refers to the investment which is motivated by the margin of profit. The</p><p>higher the margin of profit is, the larger the volume of investment. In other words, it is profit</p><p>originated investment and varies with the margin of profit in the like direction. Margin of profitdepends upon other things remaining the same, on the size of income and as such, induced</p><p>investment is income elastic. It means that it varies with the increase in the same direction. As</p><p>the income rises the investment also rises and vice versa.</p><p>Induced investment is always associated with enterprise, may it be taken by the government or</p><p>the private individuals or organizations.</p><p>5. What is Inflation rate?Ans: Inflation rate is a measure ofinflation, the rate of increase of a price (for example,</p><p>a consumer price index). It is the percentage rate of change in price level over time. The rate of</p><p>decrease in the purchasing power of money is approximately equal.</p><p>The inflation rate is used to calculate the real interest rate, as well as real increases in wages.</p><p>The rate is usually expressed in annualized terms, though measurement periods are not usually</p><p>one year.</p><p>IfP0 is the current average price level and P 1 is the price level a year ago, the rate of inflation</p><p>during the year might be measured as follows:</p><p>After the year the purchasing power of a unit of money is multiplied by a factor 1 / (1 +</p><p>inflation rate).</p><p>There are two general methods for calculating inflation rates - one is to use a base period, the</p><p>other is to use "chained" measurements. Chained measurements adjust not only the prices,</p><p>but the contents of the market basket involved, with each price period. More common,</p><p>however, is the base period reference. This can be seen from inflation reports from the</p>http://www.blurtit.com/q576655.htmlhttp://www.blurtit.com/q576655.htmlhttp://www.blurtit.com/q808689.htmlhttp://www.blurtit.com/q808689.htmlhttp://www.blurtit.com/q808689.htmlhttp://www.blurtit.com/q808689.htmlhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Real_interest_ratehttp://en.wikipedia.org/wiki/Wageshttp://en.wiktionary.org/wiki/annualisehttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Market_baskethttp://en.wikipedia.org/wiki/Market_baskethttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wiktionary.org/wiki/annualisehttp://en.wikipedia.org/wiki/Wageshttp://en.wikipedia.org/wiki/Real_interest_ratehttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Inflationhttp://www.blurtit.com/q808689.htmlhttp://www.blurtit.com/q808689.htmlhttp://www.blurtit.com/q808689.htmlhttp://www.blurtit.com/q808689.htmlhttp://www.blurtit.com/q576655.html</li><li><p>8/4/2019 What is Suppressed Inflation</p><p> 3/4</p><p>"relative weight" assigned to each component, and by looking at the technical notes to see</p><p>what each item in an inflation basket represents and how it is calculated.</p><p>6. What is Public Expenditure?Ans: Public Expenditure refers to Government expenditure i.e. Government spending. It is</p><p>incurred by Central, State and Local governments of a country.Public expenditure can be defined as, "The expenditure incurred by public authorities like</p><p>central, state and local governments to satisfy the collective social wants of the people is known</p><p>as public expenditure."</p><p>Throughout the 19th Century, most governments followed laissez faire economic policies &amp; their</p><p>functions were only restricted to defending aggression &amp; maintaining law &amp; order. The size of</p><p>public expenditure was very small.But now the expenditure of governments all over has</p><p>significantly increased. In the early 20th Century, John Maynard Keynes advocated the role of</p><p>public expenditure in determination of level of income and its distribution.</p><p>In developing countries, public expenditure policy not only accelerates economic growth &amp;promotes employment opportunities but also plays a useful role in reducing poverty and</p><p>inequalities in income distribution.</p><p>7. What is Economic StatisticsAns: Economic statistics is a topic in applied statistics that concerns the collection, processing,</p><p>compilation, dissemination, and analysis of economic. It is also common to call the data</p><p>themselves 'economic statistics', but for this usage see economic data. The data of concern toeconomic statistics may include those of an economy of region, country, or group of countries.</p><p>Economic statistics may also refer to a subtopic ofofficial statistics for data produced by official</p><p>organizations (e.g. national statistical services, intergovernmental organizations such as UnitedNations, European Union or OECD, central banks, ministries, etc.). Analyses within economic</p><p>statistics both make use of and provide the empirical data needed in economic research, whether</p><p>descriptive or econometric. They are a key input for decision making as to economic policy.</p><p>Inflation is defined as the persistent rise in the aggregate price level. However it should be kept in</p><p>mind that inflation is a state of rising prices and not a state of high prices.</p><p>8. What are the causes of Inflation?1) Increase in the money supply in the economy or increase in the velocity of the circulation of</p><p>money.</p><p>2) Increase in the government expenditure in the economy.</p><p>3) Increase in the investment expenditure in the economy.</p><p>4) Deficit financing is an important cause of inflationary rise in the prices.</p><p>5) Increase in the population growth of the economy. It is a very important cause of rise in the</p><p>basic food prices in a developing country like India.</p>http://en.wikipedia.org/wiki/Statisticshttp://en.wikipedia.org/wiki/Data_collectionhttp://en.wikipedia.org/wiki/Data_analysishttp://en.wikipedia.org/wiki/Economic_datahttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Official_statisticshttp://en.wikipedia.org/wiki/List_of_national_and_international_statistical_serviceshttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/OECDhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Econometrichttp://en.wikipedia.org/wiki/Economic_policyhttp://en.wikipedia.org/wiki/Economic_policyhttp://en.wikipedia.org/wiki/Econometrichttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/OECDhttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/List_of_national_and_international_statistical_serviceshttp://en.wikipedia.org/wiki/Official_statisticshttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Economic_datahttp://en.wikipedia.org/wiki/Data_analysishttp://en.wikipedia.org/wiki/Data_collectionhttp://en.wikipedia.org/wiki/Statistics</li><li><p>8/4/2019 What is Suppressed Inflation</p><p> 4/4</p><p>6) Increase in the export of the economy. It creates a shortage of commodities in the domestic</p><p>market.</p><p>7) Increase in indirect taxes like sales tax. It increases the cost of production for the producers.</p><p>Hence they raise the prices of their manufactured items.</p><p>8) Decrease in indirect taxes like income tax.</p><p>9) Increase in hoardings, profiteering and black marketing. When people are engaged in black</p><p>and illegal activities, demand for essential and luxury items rises.</p><p>10) Increase in wage rates. It causes the producers to raise the prices of their goods to balance</p><p>their profits.</p><p>Control of Inflation</p><p>1)Monetary Measures:</p><p>Monetary measures can help in reducing the pressure of demand.Monetary measures to control</p><p>inflation includes:</p><p>(i)Higher bank rate.</p><p>(ii)Sale of government securities in the open market.</p><p>(iii)Increase in reserve requirements.</p><p>(iv)Selective credit control measures like Consumer Credit Control,Rationing</p><p>All these measures lead to fall in money supply that takes away the extra purchasing power of</p><p>the people.Hence aggregate demand falls and prices of the commodities also falls.</p><p>2)Fiscal Measures:</p><p>Fiscal Measures also help in reducing the pressure of demand.These measures include:(i)A reduction in government spending.</p><p>(ii)Increase in tax rates.</p><p>(iii)Increase in public borrowings.</p><p>3)Other Measures:</p><p>Other measures like expansion of output,wage policy,price control and rationing can be used to</p><p>supplement the monetary fiscal measures undertaken to combat inflationary measures.Moreover</p><p>suitable income policy can be adopted to control cost push inflation.</p></li></ul>