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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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