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ASSIGNEMENT - 2 MACRO ECONOMICS

Submitted to Prof. Ruchika Bansal

Submitted by SIVA SHANMUGA PRIYA N S 2011012

Indus World School of Business


Greater Noida

Date: 22/02/2012

Inflation Graph & Interpretation

A continuous rise in the prices of goods or commodities over a period of time is called inflation. The chart is plotted below.

12.0%

Inflation Graph in india


10.0% 8.0% 6.0% 4.0% 2.0% 0.0% July July July July July July October October October October October October July October April April April April April April January January January January January January April -2.0% January Series1

2005

2006

2007

2008

2009

2010

2011

2012

There are several internal and external factors for this, a) An increase in the money circulation leads to increased purchasing power that leads to increased demand, thereby prices will increase. b) In some cases the non-availability of some goods leads to increase in their price. That increase in demand might also be a result of reduced interest rates, or a cut in tax rates. c) When the cost of production rises that will result in the increased cost of the commodity. Reasons for cost of production rise can be - Rising labor costs

- Monopoly or oligopoly firms in market for certain goods - Raises prices, cost of imported raw material rises due to exchange rate changes. - External factors, such as natural calamities. - Increase in indirect taxes. In 2005 April to 2007 April there was an inflation rate increased from 2.7% to around 6%. There were several reasons for that. The boom in the IT industry was an important reason for that. It gave the consumers purchasing power because of high salary packages. Consumers purchasing power had increased and the price of commodities also increased. But after April 2007 there was decline in the rate of inflation due to low prices of vegetables, poultry chicken, fruits, and a few items. Some products that had become cheaper were imported basic pig iron edible oil, methanol, bakery products, and foundry pig iron. A rising trend had been seen in prices of milk, tea, and other few. Then in 2008 the period of recession had started and the prices had slightly started increasing as the prices were already going up for past few years, those who had purchasing power were able to pay a higher price. But after October 2008 and whole 2009 and till April 2010 the recession period has strongly affected India. It resulted in 1. 2. 3. 4. Loss of jobs, Declining purchasing power Less demand in market People stop buying luxury and semi luxury goods. This resulted in fall of commodity prices. Then after April 2010 again industries tried to pull them up from the effect of recession and they started blooming and the inflation starts increasing.

Unemployment Graph & Interpretation

The Unemployment factor is having an important role in the economic growth. From 2006 to 2008 the unemployment rate was going down, that implies people are getting employed in this period. The reason for this is booming of IT industries and related telecom industries, e- commerce introduction to the market and other big players started expanding their businesses to various other sectors and product line. From 2008 to 2010 we could find the high rate of unemployment, due to recession in the world economy. It resulted in people started losing their jobs and they were not able to find new jobs quickly. Till 2011 it remains same, that implicitly indicates that the recession has finished almost but the after math effect of that still continues in the economy.

10

Unemployment in India
9.5 9 8.5 8 7.5 7 2006 2008 2010 2011

Series1

Inflation with Unemployment

If we start analyzing by combining both inflation and unemployment, we could get an idea of the interdependency among them. 2006 to 2008 - Unemployment rate was decreasing Inflation rate was increasing. That implies people are getting employed in this period because of booming IT/ ITES industries, related telecom industries, e- commerce introduction to the market and other big players started expanding their businesses to various other sectors and product line. So the increased employment led to money circulation in market through the peoples salary and increased purchasing power and the commodities rate started increasing. 2008 to 2010 Unemployment rate was increasing Inflation rate was decreasing. Due to recession in the world economy people in all industry started losing their jobs and they were not able to find new jobs quickly. It led to decreased purchasing power of them and the prices started falling down. After 2011 Unemployment rate was constant Inflation rate is almost constant with slight variation The unemployment level remains same that leads almost same inflation rate with slight variation. That indicates that the recession has still having its effect in the economy.

We could understand from this, that the unemployment and inflation almost has inverse relationship.

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