INFLATION

 Inflation is defined as a sustained increase in the

price level or a fall in the value of money.
 CAUSES OF INFLATION:
Demand pull inflation:
Demand pull inflation exists when aggregate demand for goods and services outstrips
aggregate supply. It starts with an increase in consumer demand. Sellers meet such an
more supply but when additional supply is not available sellers raise their price that
result in demand full inflation.

Cost push inflation:

When the costs of supply or the level of supply falls either will make the price rises in
the final goods and services if the demand remain the same.
Measures to control inflation::
1. Monetary Policy - central bank controlling the supply of money in the
economy by exercising it control over interest rates in order to maintain
price stability for high economic growth.
Some of the important monetary measures to check the inflation are as
under:

Control over money-

It is suggested government should put strict restrictions on the issue of
money by the central
bank.

Credit control
Central bank should pursue credit control policy .In order
to control the credit it should increase the bank rate ,raise
minimum cash reserve ratio etc.
 2.Fiscal policy - Measures taken by the government to control
inflation.

Decrease in public expenditure- One of the main reasons of inflation is

excess public expenditure like building of roads ,bridges etc. Government
should drastically scale down its non essential expenditure.

Delay in payment of old debts: Payment of old debts that fall due
should be postponed for sometime so that people may not acquire extra
purchasing power.

-Increase in taxes : Government should levy some new direct taxes and
raise rates of old taxes.

Over valuation of money: To control the over valuation of money it is

essential to encourage imports & discourage exports.
Other measures :
1. Increase in the production- One of the major cause of the inflation is the
excess of demand over supply ,so those goods should be produced more
whose prices are likely to rise rapidly .In order to increase production public
sector should be expanded and private sector should be given more incentives.
Proper investment policy:
Those goods which are in scarcity should be imported as much as possible
from other countries and their export should be discouraged.

Encouragement to saving:
During inflation government should come out with attractive saving
schemes. It may issue 5 or 10 year bonds in order to attract savings.

Proper investment policy:

Investment in those industries should be increased wherein more
production of goods can be generated over a short period of time .Less
investment should be made in industries having long production period.