INFLATION & BUSINESS CYCLE & Employment

Inflation

is a consistent and appreciable rise in the general price level

The rate of inflation is measured

Wholesale Price Index (WPI) and Consumer Price Index (CPI) and GDP Deflator

Demand-Pull Inflation

if the demand is high for a product and supply is low, the price of the products increases

Cost-Push Inflation

When the cost of raw materials and other inputs raises inflation results
Increase in wages paid to labour also leads to inflation

Types of Inflation (on basis of speed)

Creeping/Walking: 1-3% per year

Running/Moderate: 10-20% per year

Galloping/Hyper: >20% per year

Stagflation

A situation in which economy faces inflation and high rate of unemployment

Deflation

It is a persistent fall in the general price level of goods and services

Reflation

A fiscal or monetary policy designated to expand a country's output and curb the effects of deflation

Currency depreciation

It is a sudden fall in the value of a currency against other currencies

Recession

Refers to the general fall in demand as economic activities take a downturn

Phillips Curve

an economic concept that shows the trade-off between inflation and unemployment

Managing Inflation

Governments and central banks uses monetary policy (adjusting interest rates) and fiscal policy (taxation and government spending) to control inflation

Disguised unemployment

The type of unemployment in the agricultural sector of India where more people are employed than required is known as

Frictional unemployment

is a type of unemployment that occurs when workers move from one job to another job

working-age population

15 years to 59 years

Cyclical unemployment

Unemployment that occurs during recessions and depressions

WPI (Wholesale Price Index)

It is an index that measures inflation
An index that measures and tracks the changes in the price of goods in the stages before the retail level

WPI (Wholesale Price Index) Time & Focus

It measures the wholesale prices on a monthly basis
Only Focuses on Goods not services

CPI (Consumer Price Index)

An index that measures inflation
Average change over time in the prices paid by consumers in urban households for a basket of goods and services

CPI 4 different sets

1. CPI-IW - Industrial Workers (urban, wage earners)
2. CPI-AL/RL - Agricultural Labourers / Rural Labourers
3. CPI-Rural (CPI-R) - for rural population
4. CPI-Urban (CPI-U) - for urban population

The four different phases of the business cycle

(i) Boom
(ii) Recession
(iii) Depression
(iv) Recovery

Bottleneck Inflation

When supply falls drastically and demand remains the same