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Home/inflation

Mains Answer Writing Latest Questions

Abi
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AbiBegginer
Asked: July 18, 2024In:
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“What impact does inflation have on the economy, and how does the central bank manage it through its monetary policy?”

inflation
  1. Anita Dhruw
    Anita Dhruw Legend

    The most important negative effects of inflation arise from reduction in purchasing power. Inflation can reduce the value of our money by a huge amount, making it even more difficult to purchase the things we want and need. Knowing how inflationary prices affect our purchasing power is an aspect ofRead more

    The most important negative effects of inflation arise from reduction in purchasing power. Inflation can reduce the value of our money by a huge amount, making it even more difficult to purchase the things we want and need. Knowing how inflationary prices affect our purchasing power is an aspect of financial knowledge, and this skill will help us perform better in managing our money.
    An influx of money into the economy from the macroeconomic point of view leads to inflation. Since there will be more money, it reduces the value of each and every unit of currency. This in turn increases the prices of the commodities and services by the reduced value of the money. Therefore, the money can purchase fewer goods and services than it could in the past.

    Inflation and purchasing power-At the level of the individual, experiences vary from one person to another with the variables like income, expenses, and lifestyle.

    Here’s how inflation may affect your purchasing power:

    1. Savings: Because of time, inflation can gradually reduce the value of your savings. For example, imagine having $1,000 worth of savings, and the inflation rate is 3%. After one year, the value of your savings will have shrunk to $970.

    2. It is more expensive to maintain living standards due to higher costs of living: With rising prices of goods and services, it becomes harder to achieve the same standard of living, thus reducing the quality of life.

    3. Low returns: Inflation will also affect the return on investment. Let’s assume you invest in a bond yielding 2%, and you have a rate of inflation of 3%. This means you are losing money on your investment.

    Understanding how inflation affects the purchasing power is extremely important in financial decision-making. In other words, having an understanding of inflation will enable people to think ahead and adjust their strategies because they will be able to realize early if the cost of living will continue to rise or not.

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ijaz ahammed
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ijaz ahammed
Asked: July 18, 2024In:
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What is the benefit of the bank of Monterey’s Monterey policy for a small business owners ?

bank servicedepositinflationintrest rateloan
  1. ijaz ahammed
    ijaz ahammed

    The Bank of Monterey's Monterey policy supports local economic development by providing financial resources and support to local businesses, entrepreneurs, and individuals. This policy helps create jobs, stimulate growth, and promote economic vitality in the Monterey region. Flexible loan options, cRead more

    The Bank of Monterey’s Monterey policy supports local economic development by providing financial resources and support to local businesses, entrepreneurs, and individuals. This policy helps create jobs, stimulate growth, and promote economic vitality in the Monterey region. Flexible loan options, competitive interest rates, and personalized financial support enable local businesses to expand operations and improve financial stability.

    The policy fosters innovation and entrepreneurship by providing access to capital for start-ups and small businesses, leading to new job opportunities and increased economic activity. The bank’s commitment to supporting local economic development has a positive impact on the community, contributing to economic growth and prosperity. By supporting local businesses and entrepreneurs, the bank invests in the future of the Monterey region. This policy is essential for the region’s economic well-being and development, making it a better place to live, work, and do business. The bank’s Monterey policy plays a vital role in shaping the region’s economic landscape.

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Prerna Batra
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Prerna BatraBegginer
Asked: July 19, 2024In: , ,
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developingdevelopmentinflationpoorrich
  1. sweett soull
    sweett soull Begginer

    Yes, rising inflation is a concern for developed nations like the US. Here’s how it impacts them: 1. Reduced Purchasing Power: - Inflation erodes money’s value, meaning consumers can buy less with the same amount of money. 2. Higher Cost of Living: - Prices for goods and services rise, increasing thRead more

    Yes, rising inflation is a concern for developed nations like the US. Here’s how it impacts them:

    1. Reduced Purchasing Power:
    – Inflation erodes money’s value, meaning consumers can buy less with the same amount of money.

    2. Higher Cost of Living:
    – Prices for goods and services rise, increasing the cost of living and putting financial strain on households.

    3. Interest Rate Hikes:
    – To control inflation, central banks like the Federal Reserve may raise interest rates, increasing borrowing costs for consumers and businesses.

    4. Economic Uncertainty:
    – High inflation creates uncertainty, making it harder for businesses to plan for the future, potentially slowing down investment and economic growth.

    5. Impact on Savings:
    – The real value of savings decreases, affecting retirees and others who rely on fixed incomes.

    6. Wage-Price Spiral:
    – As the cost of living increases, workers demand higher wages, leading to higher production costs and further price increases, creating a cycle.

    7. Budget Deficits:
    – Government spending might increase to keep up with rising costs, potentially leading to larger budget deficits.

    8. Market Volatility:
    – Inflation can cause stock and bond markets to become more volatile, impacting investments and retirement accounts.

    9. Social Unrest:
    – Prolonged high inflation can lead to social dissatisfaction as people’s standard of living declines, potentially leading to political instability.

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Nandini Bansal
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Nandini BansalBegginer
Asked: July 20, 2024In:
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How does the money supply affect inflation and deflation?

deflationinflationmoney supply
  1. Anita Dhruw
    Anita Dhruw Legend

    The money supply in the making of inflation and deflation as well. Of course such factors are used to determine the level of prices in an economy.   With this money supply there is more liquidity in the consumption and the production processes. As is evident from the Quantity Theory of Money MVRead more

    The money supply in the making of inflation and deflation as well. Of course such factors are used to determine the level of prices in an economy.

     

    With this money supply there is more liquidity in the consumption and the production processes. As is evident from the Quantity Theory of Money MV = PQ an increase in the stock of money ‘M’, at a constant velocity ‘V’, the resultant will be an increase in the price level ‘P’ with ‘Q’ constant. In a nutshell, yet more money is thrown after the same quantity of goods and services and demand goes further up and up goes the prices and inflation. 

     

    But with most instruments, a central bank also increases money stock through open market operations, reducing interest rates to encourage even higher consumption and investment to bring in easy, demand-led inflation.

     

    This is because when money supply is reduced more money is left in the central bank than circulating in the economic market reducing the consumers’ expenditure and businesses investment thereby lowering the aggregate demand hence deflation. Because price level has a tendency to go down as time goes on; low demand consequently reduces the price level hence deflation.

     

    Aggressive deflation would be a bane to the corporate revenues and also send the economy into stagnation because the consumers wait for cheaper products to be released

    Corev, more central banks monitor this money supply and adjustment to a middle position is done to control inflation and avoid both deflationism and inflationism for economy steadiness.

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Archana S
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Archana SBegginer
Asked: August 6, 2024In: ,
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Politics and Economics in India- Whether it is separate or linked?

economic inputgdpinflation
  1. mhk saini
    mhk saini Learner

    The reality is that businessmen perceive their own interests that are, many a time, at variance with the legal structure laid down by elected representatives. Powerful business groups make every effort to win over the public policymakers for the protection and promotion of their own business interesRead more

    The reality is that businessmen perceive their own interests that are, many a time, at variance with the legal structure laid down by elected representatives. Powerful business groups make every effort to win over the public policymakers for the protection and promotion of their own business interests. If politics wants to control and regulate economic activity with a view to promote public good, business too wants to influence and control the government in every democracy for its own personal advantage. Hence, every modern democracy has engaged itself in evolving mechanisms to keep political decision-makers insulated from the attempts of businessmen to influence the making of public policies.

    Prime Minister Manmohan Singh is seized of the problem of keeping ‘politics at a distance from business’ and, on February 3, the media reported that the ministers have been asked ‘to sever all ties with business in which they have a stake’ . The PM rightly felt that there is a likely conflict of interest if ministers are associated with business and, hence, they are advised to distance themselves from the conduct of any business they might have been interested in before appointment. While the PM set the cat among the pigeons, company affairs minister Salman Khurshid on February 4 suggested a way out and advised the ministers that, like the US President, ‘politicians in power should get trusts to handle their business interests.’ inter-relationship and illicit liaison between politics and business does not end with ministers managing their own businesses or the possibility of inter-penetration of politics and business on the basis of funds provided by businessmen for elections to political parties or individual influential political leaders. Every democratic country including India has laws for the regulation of corporate funding of elections.

     

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Ravnit Kaur
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Ravnit KaurBegginer
Asked: August 10, 2024In: ,
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Inflation is referred to as a rise in the general level of prices or a sustained rise in the general level of price. In case, general price level rises, each unit of money buys fewer goods and services. Consequently, Inflation ...

gdpindian economyinflation
  1. Dr sangeeta Singh
    Dr sangeeta Singh Learner

    Rising inflation can have both positive and negative effects on India's GDP. Here's a nuanced explanation: *Positive effects:* 1. Increased aggregate demand: Moderate inflation can stimulate consumption and investment, boosting aggregate demand. 2. Economic growth: Higher demand can lead to increaseRead more

    Rising inflation can have both positive and negative effects on India’s GDP. Here’s a nuanced explanation:

    *Positive effects:*

    1. Increased aggregate demand: Moderate inflation can stimulate consumption and investment, boosting aggregate demand.
    2. Economic growth: Higher demand can lead to increased production, employment, and economic growth.
    3. Monetary policy: Inflation can prompt the central bank to maintain low interest rates, encouraging borrowing and investment.
    4. Fiscal policy: Government spending and tax reforms can be tailored to mitigate inflation’s impact on vulnerable populations.

    *Negative effects:*

    1. Reduced purchasing power: High inflation erodes consumers’ purchasing power, potentially reducing demand.
    2. Uncertainty: Volatile inflation can create uncertainty, deterring investment and consumption.
    3. Inequality: Inflation disproportionately affects the poor and fixed-income households.
    4. Currency depreciation: High inflation can lead to currency depreciation, making imports costlier.

    *India-specific factors:*

    1. Demand-driven growth: India’s consumption-driven economy benefits from moderate inflation.
    2. Investment-led growth: Inflation can stimulate investment in infrastructure and industry.
    3. Rural demand: Inflation can boost rural incomes and demand, supporting agricultural growth.
    4. Government initiatives: Policies like Make in India, Digital India, and infrastructure development can mitigate inflation’s negative effects.

    *Conditions for inflation to boost GDP:*

    1. Moderate inflation (4-6%): Avoids stifling economic growth.
    2. Supply-side measures: Improving productivity and efficiency can offset inflationary pressures.
    3. Monetary policy management: Calibrated interest rate adjustments can balance growth and inflation.
    4. Fiscal prudence: Targeted government spending and tax reforms can support growth.

    *Data and projections:*

    1. RBI’s inflation target: 4% (+/- 2%) CPI inflation.
    2. India’s GDP growth projections: 7-8% (FY2024-25).
    3. Inflation projections: 5-6% (FY2024-25).

     

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Ravnit Kaur
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Ravnit KaurBegginer
Asked: August 10, 2024In: ,
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Inflation is referred to as a rise in the general level of prices or a sustained rise in the general level of price. In case, general price level rises, each unit of money buys fewer goods and services. Consequently, Inflation ...

gdpindian economyinflation
  1. Jeet Ramchandani
    Jeet Ramchandani Begginer

    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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