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PPT: Inflation - Notes | Study Indian Economy for UPSC CSE - UPSC

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Lecture 3
Inflation
Prelims 2020 Crash Course
Capstone IAS Learning
Page 2

Lecture 3
Inflation
Prelims 2020 Crash Course
Capstone IAS Learning
What will we cover
Concept of Inflation
Causes of Inflation
Concept of Real interest rate and Real wages
Various terms associated with inflation
Phillips Curve
Measures of Inflation(CPI, WPI, PPI etc.)
Impact of Inflation
Page 3

Lecture 3
Inflation
Prelims 2020 Crash Course
Capstone IAS Learning
What will we cover
Concept of Inflation
Causes of Inflation
Concept of Real interest rate and Real wages
Various terms associated with inflation
Phillips Curve
Measures of Inflation(CPI, WPI, PPI etc.)
Impact of Inflation
Concept of Inflation
A rise in general level of prices is called Inflation.
An increase in the general level of prices in an
economy that is sustained over a period of time is
called Inflation.
The main causes of inflation are either excess
aggregate demand or cost push/supply shock factors.
Deflation - When the general level of prices are falling
over a period of time.
Disinflation - It is the decrease in the rate of inflation
or a slowdown in rate of increase in general price
levels of goods and services over a period of time.
Page 4

Lecture 3
Inflation
Prelims 2020 Crash Course
Capstone IAS Learning
What will we cover
Concept of Inflation
Causes of Inflation
Concept of Real interest rate and Real wages
Various terms associated with inflation
Phillips Curve
Measures of Inflation(CPI, WPI, PPI etc.)
Impact of Inflation
Concept of Inflation
A rise in general level of prices is called Inflation.
An increase in the general level of prices in an
economy that is sustained over a period of time is
called Inflation.
The main causes of inflation are either excess
aggregate demand or cost push/supply shock factors.
Deflation - When the general level of prices are falling
over a period of time.
Disinflation - It is the decrease in the rate of inflation
or a slowdown in rate of increase in general price
levels of goods and services over a period of time.
Causes of Inflation
Demand Pull
This happens when aggregate
demand outstrips aggregate supply.
Examples :
-
A growing economy
-
Over Expansion of money supply
-
Government cutting direct tax
rates
-
Growth in wages
-
Higher inflationary expectations
-
Etc.
Cost Push or Supply Shock
This happens when there is
disruption in supply or increase in
cost of production.
Examples :
-
Rising wages
-
Increase in price of raw materials
-
Higher indirect tax(or various
government regulations)
-
Depreciation of currency
-
Natural disasters that disrupt
supply
-
Deliberate cut in supply(OPEC)
-
Etc.
Page 5

Lecture 3
Inflation
Prelims 2020 Crash Course
Capstone IAS Learning
What will we cover
Concept of Inflation
Causes of Inflation
Concept of Real interest rate and Real wages
Various terms associated with inflation
Phillips Curve
Measures of Inflation(CPI, WPI, PPI etc.)
Impact of Inflation
Concept of Inflation
A rise in general level of prices is called Inflation.
An increase in the general level of prices in an
economy that is sustained over a period of time is
called Inflation.
The main causes of inflation are either excess
aggregate demand or cost push/supply shock factors.
Deflation - When the general level of prices are falling
over a period of time.
Disinflation - It is the decrease in the rate of inflation
or a slowdown in rate of increase in general price
levels of goods and services over a period of time.
Causes of Inflation
Demand Pull
This happens when aggregate
demand outstrips aggregate supply.
Examples :
-
A growing economy
-
Over Expansion of money supply
-
Government cutting direct tax
rates
-
Growth in wages
-
Higher inflationary expectations
-
Etc.
Cost Push or Supply Shock
This happens when there is
disruption in supply or increase in
cost of production.
Examples :
-
Rising wages
-
Increase in price of raw materials
-
Higher indirect tax(or various
government regulations)
-
Depreciation of currency
-
Natural disasters that disrupt
supply
-
Deliberate cut in supply(OPEC)
-
Etc.
Wage-Price Spiral
It is a macroeconomic theory that explains the cause and effect
relation between rising wages and inflation. It is a vicious cycle in
which wages increase, causing prices to increase, which in turn
creates demand for higher wages.
Higher Inflation
Demand for
Higher wages
Cost-Push factors
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Indian Economy for UPSC CSE

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Indian Economy for UPSC CSE

131 videos|325 docs|135 tests

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