Monetary Policy - MONETARY AND FISCAL POLICIES Inflation...

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MONETARY AND FISCAL POLICIES
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Inflation Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate .When Prices rise the Value of Money falls.
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STAGES OF INFLATION 1. CREEPING INFLATION (0%-3%) 2. WALKING INFLATION ( 3% - 7%) 3. RUNNING INFLATION (10% - 20 %) 4. HYPER INFLATION ( 20% and abv)
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TYPES OF INFLATION 1. Demand Pull Inflation 2. Cost Push Inflation
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Causes of Inflation 1. Demand pull Inflation Causes for Increase in Demand :- a)Increase in Money Supply b)Increase in Black Marketing c)Increase in Hoarding d)Repayment of Past Internal Debt e)Increase in Exports f) Deficit Financing
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Cont………. g)Increase in Income h)Increase in Black money i) Increase in Credit facilities
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Cont…. 2) Cost Push Inflation Causes for Increase in Cost :- a)Increase in cost of raw materials b)Shortage of Supplies c)Natural calamities d)Industrial Disputes e)Increase in Exports f) Increase in Wages g)Increase in Transportation Cost h)Huge Expenditure on Advertisement
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Effects of Inflation Inflation can have positive and negative effects on an economy . Negative effects of inflation include loss in stability in the real value of money and other monetary items over time; uncertainty about future inflation may discourage investment and saving, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include a mitigation of economic recessions, and debt relief by reducing the real level of debt.
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Cont…..
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