INFLATION VS DEFLATION AND METHODS OF CONTROLLING INFLATION

Basic concept of inflation

WHAT IS INFLATION AND METHOD OF CONTROLLING INFLATION ?

InflatIon is defined as a sustained increase in the general label of price for goods and services.it is measured as an annual percentage increase. as infection rises, every rupee you own buys a smaller percentage of goods or service,

The value of rupee does not stay constant when there is inflation. the value of rupee is observed in terms of purchasing power. which is the real.tangible goods that money can buy when inflation goes up there is decline in the purchasing power of money,

Economist generally agreed that high rate of inflation and hyperinflation are caused by an excessive growth of money supply. views on which factor determine low to moderate rate of inflation are more varied. law or moderate infection may be attributed to fluctuations in real demand for goods and services. or changes in available supplies such as during scarcities, as well as to growth in the money supply. However the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.                                               EFFECT OF INFLATION

An increase in the the general level of prices implies a decrease in the purchasing power of the currency. That is when the general level of prices rises, each monetary unit buys fewer goods and services. The effect of inflation is not distributed evenly in the economy, and as a consequence there are hidden costs to some and benefits to others from this decrease in the purchasing power of money,

If the InflatIon rate is greater than that of other countries. Domestic product become less competitive.

The value of investment are destroyed over time.

Non-uniform Inflation's can lead to heavy competition in the global market and threaten the existence of small economics.

Monetary policy 

METHODS OF CONTROLLING INFLATION

*Monetary policy

*Fixed exchange rate

*Gold standard

*Wage and price control

Monetary policy

Today the primary tool for controlling inflation is monetary policy. Most Central banks are tasked with keeping the federal funds lending rate at low level

Fixed exchange rate

A fixed exchange rate is usually used to stabilise the value of a currency. it can also be used as a means to control inflation.

Gold standard

Under a gold standard methods the long term rate of inflation ( or deflation) would be determined by the growth rate of supply of gold relative to total output.

Wage and price control

An other method attempted in the past has been wage and price control .in general wage and price control are regards as a temporary and exceptional measure ,only effective when coupled with policies designed to reduce the underlying causes of inflation during the wage and price control regime,for example, winning the war being fought.

Deflation in economic term

WHAT IS DEFLATION?

A general decline in price often caused by a reduction in the supply of money or credit. Deflation can be caused  also by a decrease in government personal or investment spending . The opposite of Inflation, deflation has the side effects of increase unemployment since there is a lower level of demand in the economy which can lead to an economic depression.central bank attempt to stop severe deflation along with severe inflation in an attempt to keep the excessive drop in prices to a minimum.

EFFECTS OF DEFLATION

*Decreasing nominal prices for goods and services

*Increasing real value of cash money and monetary item

*Discourages bank saving and decrease investment

*Benefits fixed income earners

*Recession and unemployment

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