Today we had our 5th economy class.
Market price:
Market price is the final cost at which the
manufacturer sells the goods to customers. And these are inclusive of all the
applicable taxes.
MRP inclusive of all taxes+ Indirect taxes
Factor price:
Factor cost is the total amount which the manufacturer
had to invest in production of a good or commodity. It doesn't include any
taxes imposed on the final product.
Current and Constant price:
Base year for GDP 2011-2012. It means that the
reference/ comparison year for GDP is 2011-2012.
If they say GDP increased 6% in 2013 it means that it
has increased 6 % compared to 2011-2012.
This year was selected because there was no
overperformance or under performance in economy in this year.
For different goods, the measuring metric is
different, but the common metric is rupees, so we convert the final good and
services of the domestic territory to rupees to calculate GDP.
If the GDP is Rs. 250 in 2011-2012 and Rs. 1000 in
2020-2021, it doesn’t mean the GDP is increased by 4 times. While comparing two
quantities we have to compare two equals.
Current prices are those indicated at a given moment
in time, and said to be in nominal value. Quantity of goods and services
produced * price of that year. – Nominal GDP
Constant prices are in real value, i.e., corrected for
changes in prices in relation to a base line or reference datum. Quantity of
goods and services produced * price of the base year.- Real GDP.
Nominal value(calculated in current price): It
is the total value of goods and services produced, calculated by considering
the price of that same year.
Real GDP( calculated in constant price):It is the
total value of goods and services, calculated by considering the price of the
base year.
India calculates GDP in constant market price.
Comparison with base year at the price which is given to the people.
Limitational in calculating GDP:
·
GDP vs Welfare : There is no
inclusiveness in growth of the country. With that of the growth of the welfare
of the people.
·
Non reliable data : 85% unorganized.
·
Non-monetary exchange.
·
Goods for self-consumption.
·
Black money/ parallel economy
·
Environmental cost
GREEN GDP : Here
the cost of environmental exploitation is considered and excluded from the
overall GDP value. It was introduced based on the recommendations of
Partha Dasgupta committee (2013)
INFLATION:
·
Inflation refers to the rise in the
prices of most goods and services of daily or common use, such as food, clothing,
housing, recreation, transport, consumer staples, etc. Inflation measures the
average price change in a basket of commodities and services over time.
·
Rise in general level of prices of
goods and services in an economy over a period of time.
·
Money loses its value or purchasing
power of currency is falling.
·
Too much money chasing too less
goods.
DISINFLATION:
Disinflation is a decrease in the rate of inflation –
a slowdown in the rate of increase of the general price level of goods and
services in a nation's gross domestic product over time. It is the opposite of
reflation. Here the inflation is controlled by reducing the rate of increase of
price.
DEFLATION:
·
Opposite of inflation, decrease in
the general price level of goods and services.
·
Money value increases or purchasing
power of currency is increases
·
Too less money chasing too much goods
TYPES OF INFLATION:
1.
CREEPING INFLATION:
·
Less than 3%
·
Very mild & slow moving
·
Safe and essential for economic
growth
2.
WALKING OR TROTTING INFLATION:
·
3% to 10%
·
Warning signal to government
3.
RUNNING INFLATION:
·
10-20%
4.
JUMPING OR GALLOPING:
·
20-999%
·
Double- or triple-digit inflation
5.
HYPER INFLATION:
·
More than 999%
·
Germany in 1920s, Zimbabwe in 2007,
Venezuela in 2016.
6.
DEMAND PULL INFLATION:
·
Demand-pull inflation is asserted to
arise when aggregate demand in an economy outpaces aggregate supply.
·
Demand is higher than supply.
·
CAUSES:
o
Rapid population growth
o
Black money
o
Money supply increases
7.
COST PUSH INFLATION:
·
Price rise due to increased input
cost.
·
CAUSES:
o
Increase in wages
o
Increase in Raw material
STAGFLATION:
·
Stagflation or recession-inflation is
a situation in which the inflation rate is high, the economic growth rate
slows, and unemployment remains steadily high.
·
Stagnant economic growth &
unemployment + Inflation
SKEWFLATION :
Price rise of
one or a small group of commodities over a period of time.
e.g., onion price alone increases but all other prices
are normal.
REFLAITON:
·
Recession leads to lack of demand
·
So, government increases spending to
create inflation.
·
Inflation
driven by government to mitigate recession ( lack of demand), by pumping
liquidity is called reflation.
These concepts are useful to understand economy by connecting with real
life scenarios.
Credits : Leo B Brindha and Leo Vishnu Varthan
