Rising inflation directly doesn't lead to increase in india's GDP, Rather it leads too increase in nominal GDP of the country which is calculated at current year prices of final goods and services, that neans inflation leads to increase in nominal GDP even if the productivity of the country is stagnRead more
Rising inflation directly doesn’t lead to increase in india’s GDP,
Rather it leads too increase in nominal GDP of the country which is calculated at current year prices of final goods and services, that neans inflation leads to increase in nominal GDP even if the productivity of the country is stagnent
Which makes Nominal GDP of a country as an illusionary indicator of growth in an economy while real indicator is increase in Real GDP which is calculated at base year prices (unaffected by inflation)
Infact sometimes Increase in Nominal GDP of a country results in negetive growth in following ways
1. Increase in cost of production
As a result of increase in general price levels producers would face increase in cost of production, This leads to lower profit margins which makes the producers difficult to survive
2 Lower consumer spending in long term
Rise in general price levels leads to decrease in purchasing power of consumer if income doesn’t increase proportionately, as a result consumer tends to reduce the consumption
3. Rise in interest rates
To curb the inflation RBI mmay increase the interest rates, so that it makes costly to consumer to borrow and it tends to lower the consumer spending
4. Economic unstability
Inflation leads to uncertainty in economy which makes it difficult to make decisions for consumers as well as producers which results in. Economic unstability
GOVERNMENT can take necessary steps to curb the inflation through fiscal policy so as to reduce uncertainty in market by
• Increasing taxes on income to reduce the purchasing power of consumers
• decresing govt spending or investments
• borrowing more from public to reduce the money supply in markets
Through monitery policy by
• increase in repo rates or reverse repo rates
• controlling open market operations
• increasing interest rates etc
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Managed Floating Managed floating is a type of exchange rate regime that combines elements of both fixed and floating exchange rates. In a managed float, the value of a country's currency is allowed to fluctuate in response to market forces, but the government or central bank intervenes in the foreiRead more
Managed Floating
Managed floating is a type of exchange rate regime that combines elements of both fixed and floating exchange rates. In a managed float, the value of a country’s currency is allowed to fluctuate in response to market forces, but the government or central bank intervenes in the foreign exchange market to influence the exchange rate and stabilize it within a desired range.
Key Features:
Goals:
Example:
The Chinese yuan (RMB) is an example of a managed float. The People’s Bank of China (PBOC) allows the yuan to fluctuate within a narrow range against the US dollar, while intervening in the market to maintain a stable exchange rate and support China’s economic growth.