Today the 7th economy class began with the topic “measures to control inflation”
MEASURES TO CONTROL:
Generally RBI, Government of India[GOI], and the administrators take control measures regarding inflation.
MONETARY MEASURES:
Done by RBI
By using – CRR, SLR, bank rate, open market operation, repo and reverse repo etc.
FISCAL MEASURES:
Done by Government of India
Some of the measures taken by GOI under fiscal measures
Enhancing taxation
Reduction of public expenditure
Increasing public borrowing
OTHER MEASURES:
Public distribution of essential commodities
Increasing imports and ban on exports
Some restriction on current consumption pattern
Increasing production of commodities which have direct bearing of cost of living.
INFLATION TARGETING:
Formulated by MPFA[Monetary Policy Framework Agreement], 2015
Signed between RBI and GOI
Urjit patel committee recommended it
It is handled by MPC[monetary policy committee]
Inflation target: 4%+ or -2%
MONETARY POLICY COMMITTEE[MPC]:
MPC is a six member committee constituted by the central government[Section 45ZB of the amendment RBI Act ,1934]
Of these six members 3 are from RBI[governor and deputy governor of RBI and a person selected by RBI] and the rest three are appointed by GOI
The MPC is required to meet at least 4 times in a year
The quorum for the meeting of the MBC is four member
Each member has one vote and in the event of equality of votes the governor has a second or casting vote
Once in every six months the RBI is required to publish a document called the monetary policy report to explain
The sources of inflation
The forecast of inflation for the next 6-8 months ahead
The MPC determines the policy interest rate (repo rate) required to achieve the inflation target[4% + or -2%]
TRADE CYCLE:
The economic activity in a capitalist economy will have its periodic ups and downs. The study of these ups and downs is called business cycle (or) trade cycle (or) industrial fluctuation.
PHASES IN A TRADE CYCLE:
Good or expansion phase
Consists of boom and recovery phases
In this phase price increases and unemployment decreases
Bad or contraction phase
Consists of recession and depression phases
In this phase price decreases and unemployment increases
EXPANSION PHASE:
(1)Boom:
Employment at its peak
Rapid increase in economic activity
Money supply increases and eventually increasing the inflation
Rapid increase in National Income.
(2)Recovery:
Revival towards up surging
Begins with demand for capital goods and autonomous investment by government boost the economy
Production, profit, wage employment starts to increase.
CONTRACTION PHASE:
(1)Recession:
Investment and production drastically reduces
Decline in income and profits
Panic in stock market and business activities
Liquidity preference of the people rises and money market becomes tight.
(2)Depression:
Economic activities become extremely low leading to loss or closure of business
Employment decreases at this stage
Wages, interest, profit will be low.
TROUGH:
Trough is the extreme point of depression
External help is needed to recover from this point
MONEY AND BANKING:
MONEY:
Money can be anything that is generally accepted as a medium of exchange and at the same time act as a measure and store of value.
