Politics and Economics in India- Whether it is separate or linked?
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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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.