Indian Economy Part 3 - Concepts of Micro Economics for UPSC / SSC / RBI / RRB / NABARD Video Lecture | Indian Economy for Government Exams (Hindi) - Bank Exams

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hello friends welcome to study argue in
this session we will be learning a new
module inflation what is inflation
inflation can be said as a persistent
rise in the general level of prices of
commodities in an economy that is then
increase in the average price level in
the economy so inflation means that with
more money you are now able to buy only
fewer commodities or lesser commodities
so inflation means persistent rise in
the prices of commodities in an economy
over a long period of time so it
generally means increasing prices
inflation can be divided into two types
one is demand pull inflation and the
second one is cost push inflation demand
for inflation and cost push inflation
demand pull inflation is caused due to
an increase in the demand in the market
or an increase in the aggregate demand
in the market causes demand pull
inflation the world itself says demand
pull that means there is a pole in the
demand there is an increase in the
aggregate demand in the market then when
it comes to cost push inflation it means
that the cost of production in the
economy has increased and you do an
increase in the cost of production in
the economy supply has decreased and
this has resulted in increase in the
prices in the economy that is due to a
increase in the cost of production that
this cost push inflation so demand pull
means increase in the aggregate demand
in the economy and cost push inflation
means increase in the cost of production
in the economy now let us see each
inflation type one by one first what
demand pull inflation so demand pull
inflation as we have discussed is caused
due to an increase in the aggregate
demand in the economy increase in
aggregate demand in the economy so let
us see through a graph let us take price
P in the y axis and quantity demanded QD
in the x axis downward slopping demand
curve
and upward sloping supply curve
equilibrium point II we have already
discussed that when there is an increase
in aggregate demand in the economy the
demand curve would shift to the right
there will be a rightward shift of the
demand curve when there is an increase
in the aggregate demand in an economy so
here we can see that the demand curve
has shifted to the right and the new
demand curve is dd1 and the new
equilibrium point is even so at the new
equilibrium point we have new price p1
and new quantity Q the old price was P
and 23 demanded was Q so here we will
see that the there is an increase in
price due to an increase in the demand
also here we will notice that the
quantity demanded has increased so in
demand pull inflation the price
increases also the quantity demanded
increases in fact the increase in the
price is due to the increase in quantity
demanded of the commodity so here the
price and the quantity demanded also has
increased so this is demand pull
inflation now let us see cost-push
inflation let us take price P in the y
axis and quantity demanded QD on the x
axis downward sloping demand curve
upward sloping supply curve equilibrium
point e at equilibrium point e the
prices P and quantity demanded is Q so
here what has happened here we will see
that there is an increase in cost of
production cost of production in the
economy has increased and this has
resulted in a decrease in the supply so
you do an increase in the cost of
production the supply in the economy has
decreased all come down so do you do a
decrease in the supply the supply curve
has shifted to the yes
and decreasing supply has shifted the
supply curve to the left so now the new
supply girl is SS 1 and new equilibrium
point is even so at the new equilibrium
point the new prices p1 and the new
quantity demanded Asst q1 so here we
will see that the price has increased
from p2 p1
also you should notice here that the
quantity demanded has come down from q2
q1 so here we will observe that the
price has increased and the quantity
demanded has decreased so what is the
difference between demand pull inflation
and cost push inflation then in demand
pull inflation we have seen that the
price has increased also the quantity
demanded has increased and in fact we
saw that the quantity demanded has
increase and that was the reason why the
price increase but on the contrary in
cost push inflation we see that the
quantity demanded has also come down due
to an increase in the price of that
commodity now let us see what are the
causes of inflation first let us analyze
the course of demand pull inflation the
first reason for demand for inflation is
an increase in the purchasing power of
the consumers increasing purchasing
power of consumers
what is this purchasing power mean
purchasing power means the consumers now
have more money to spend that is the
money supply in the economy has
increased money supply increased so
purchasing power of the consumers has
increased more money supply more money
for purchasing so this leads to demand
pull inflation that is when consumers
have more purchasing power or when there
is more money supply in the economy the
aggregate demand in the economy also
would increase and this would
demand-pull inflation in the economy the
second reason for demand for inflation
is deficit financing what is mean by
deficit financing we have expenditure
and revenue when expenditure is more
than the revenue we have deficit and in
order to make this deficit we would
borrow so there would be borrowings this
is known as deficit financing to meet
our deficit we borrow money and this is
deficit financing when the deficit
financing goes up there will be more
money in the economy for spending so
more the deficit financing means more
the expenditure so more expenditure in
the economy means more money's
completely economy for purchase of goods
and services and this will lead to an
increase in the aggregate demand in the
economy and this will lead to demand
pull inflation in the economy third
reason for demand pull inflation in
economy would be increase in forex in
the economy what is meant by forex
forest is the foreign reserves that our
country has so how does the forex in the
economy increase forex in the economy
will increase when we have more of
exports when we have more foreign
remittances etc so we will learn about
forex in detail when we learn about the
external sector of the economy so in
forex of an economy increases it would
lead to increase in money supply in the
economy and that will lead to increase
in aggregate demand in the economy and
that will finally lead to demand pull
inflation in the economy next reason for
increasing demand pull inflation is
decreasing Direct Taxes decrease in
Direct Taxes so as we all know taxes are
of two types
direct and indirect so direct taxes are
collected directly from the individuals
and indirect taxes are collected from
the second person of the third person so
not collected directly so here we will
see how an increase or decrease in the
tire taxes will
demand inflation in our economy so we
have a concept called personal
disposable income what is personal is
possible income the total income of a
person - the direct taxes paid by that
person we give personal disposable
income that is the personal is possible
income is that amount of money that an
individual has for spending for his or
her consumption expenditure so total
income - direct taxes of an individual
we give ourself disposable income so
personal is possible income once each
increases it will lead to increase in
consumption expenditure of individuals
and if personal is possible income comes
down it will lessen the consumption
expenditure of individuals so here
when indirect taxes comes down in an
economy the personal disposable income
will go up so an increase in personal is
possible in completely - an increase in
the spending on consumption expenditure
and this will lead to an increase in
aggregate demand in the economy which
will lead to demand pull inflation in
the economy next reason for demand pull
inflation is increase in black money
what is black money black Mary meets
unaccounted money the money for this you
have not paid taxes so if you save taxes
on your income or on your profits or on
your money what will happen it will
increase the purchasing power how so now
you have more money in your hand for
spending so increasing drag money in the
economy will lead to an increase in
aggregate demand in the economy and this
will lead to increase in demand pull
inflation in economy next reason for
demand for inflation and increase in a
population in the economy as population
increase
in economy there will be more people
more people relate to more demands on
demand relate to demand current
inflation
next reason for demand pull inflation
as' increase in the budgetary deficit
what is my budgetary deficit in budget
we have expenditure as well as revenue
when exponential increases it will lead
to deficit talk more budgetary deficit
means more of expenditure
so when exponential increases the
deficit in a budget also increases that
means the government is spending more
money expenditure explanation of the
government is increasing so the
expenditure of the government will be
definitely on the public and when
government spends more money on the
public it will result in less
expenditure from the public's pocket so
this will result in more money with the
public for spending on that personal
consumption expenditures I'll explain it
so when the expenditure of the
government increases this will lead to
less expenditure by the public so that
means now the public have more money for
their personal use or personal spending
so more money for the personal spending
means they have more money for their
personal consumption expenditure and
this will lead to increase in the
aggregate demand in the economy and this
will lead to demand pull inflation in
the economy next raisers increase in
exports so exports increases there will
be lesser commodities available in the
domestic market for sale so lesson of
oil it is an enormous a market for sale
means aggregate supply in a market is
less than the aggregate demand in the
economy so this will lead to the supply
demand gap and this will lead to demand
by inflation
next is decreasing imports suppose we
are dependent on imports for a
particular commodity
finally the import comes down you brainy
factor what will happen we will have the
same demand but the supply has come down
you do a decrease in the imports so this
also will lead to a supply event yeah
and this will pull in the demand to our
upper side and the supplies value
website this will result in demand pull
inflation these are the reasons for
demand for inflation in economy hope it
is real for all of you now let us see
what are the causes of course push
inflation in the economy cost push
inflation in the economy as we have
already discussed cost push inflation
means the inflation caused due to an
increase in the cost of production in
the economy so the prices in an economy
has gone up because there is a shortage
of supply and by in the shortage of
supply it is because the cost of
production has gone up
let us analyze the causes the first
reason for cost push inflation is the
increase in the cost of production in a
economy it is the most important cause
for cost-push inflation so cost of
production can be divided into practiced
and known factor cost let us see what
this factor goes what is non factor post
we have learned the concept of factors
of production in the economy in your in
theory classes so factors of production
in the economy of land labor capital and
entrepreneur so we have to give
remuneration to the factors of
production for the land we have to
provide the lens labor wages capital
interest and for the entrepreneur we
have to provide the profits so any
increase in the wages the range the
interest on a profit would lead to an
increase in the cost of production so
increase in any of this and in addition
to the factors of relation may lead to
an increase in a course reflection on
the other side you have non factor
inputs like the raw materials so an
increase
also forbidden it also boosts under
God's aggression so any increase in the
factor or non factoring boots would lead
to an increase in a course of production
in economy
well cause of production increases the
supply will come down and one supply
comes on there will be a supply in oh
yeah and this will lead to cost push
inflation the next reason for an
increase in cost push inflation is
increasing indirect taxes and increase
in the indirect taxes will increase the
price of the commodity so that will lead
to cost push inflation next reason is a
decrease in uh subsidies we know that
the government provides very subsidies
to the producers so when producers
receive the subsidies mystic effect the
prices so one stuntman is giving more
subsidy means the producers will be able
to sell their commodities in a market at
lower price and if the government brings
down the subsidies what will happen to
the price of a commodities the producers
will be compelled to increase the prices
of the commodities and once this
commodities reaches the market the
prices will be high so when government
reduces in subsidies to the producers it
will increase the cost of production of
the producers and this lead to increase
in prices of the commodities and they do
cost-push inflation in the economy next
reason for cost push inflation is
hoarding and speculation hoarding in
speculation happens when the producers
or the manufacturers are not willing to
bring their commodities into the market
first say this yummy because they are
expecting a higher price in the future
or final reason so when this producers
are not bringing their commodities into
the market there will be a shortage of
supply in the markets and demand will
remain the same
so an increase in demand over the supply
will increase rise
commodities and this will lead to
increase in inflation economy leading to
cost push inflation in economy in order
to tackle problem of holding in
circulation
the government has bought many measures
and these measures we will discuss many
learn about agriculture next reason for
goes push inflation a reduction in the
production or output of the phone
this can be due to many factors like
every dispute government policies
weather conditions many Vaca like that
next reason for calls push inflation s
and increase in the price of imports we
have already said that many of the
industries are dependent on imports for
their raw materials so when the import
prices increases what will happen it
will result in an increase in the cost
of crashing so this willing to increase
in go suppression and then leading to
cost push inflation the economy next
witness
increase in exports increase in exports
will result in under inherently a
shortage of raw materials or final
output China economy so this will also
lead to a supply demand yeah and then
leading to a course push inflation in
our economy next Venus a decrease in
imports vendor is a decrease in imports
there can be chances that these products
are the important tools are used as all
readiness and once the producers speed a
shortage of raw materials for M
commodities on final output able to
increase the cost of crashing and this
will lead to post wish invasion of
economy next we will forego swish
inflatius
the effective supply chain this is in
fact one of the main reasons for food
inflation in our country government has
my initials ridiculous problem but
Sylvie amazing problem with the supply
chain and food inflation because we have
a very diversified market and most of
our farmers are marginal farmers we will
learn about this in detail in high
because Memorial but what is an
effective supply chain you will discuss
it here so the practice of leyte means
there is no direct relation between your
producers and the consumers it means
that there is no direct connection
between the producers and the consumers
so when the product reaches the consumer
it will be handed over by many people to
reach the final consumer but for
inflation we have a control but it is a
long term process because the supply
chain is defective because Indian
economy or the Indian market is largely
informal and then farmers are marginal
farmers so for inflation is very
important cause of concern in the Indian
economy government is already taken so
many steps to tackle it but they are all
very long-term missions in the short
term it is very difficult for the
government to control food inflation in
the economy so defective supply chain
will increase the price of the
commodities in the market and this will
lead to cost push inflation in the
economy now let us see what are the
measures to control inflation in the
economy broadly there are three measures
to control inflation one is monetary
policy second harness fiscal policy and
the third one supply management measures
let us see one by one the first word
monetary policy monetary policy of a
country is taken by the central bank of
that country or that economy so in case
of India the monetary policy in India is
taken by the Reserve Bank of India or
the RBA so the country's central bank
takes that monetary policy monetary
policy can be broadly divided into 2
that is contractionary monetary policy
and expansionary monetary policy let us
see what is contractionary and X
monetary policy contractionary monetary
policy so contraction or the word
contraction means bringing closer so
making it less so contractionary
monetary policy aims at decreasing the
money supply in the economy that means
contractionary policy aims at reducing
the money supply in the economy while
the expansionary monetary policy aims at
increasing the money supply in the
economy if you remember we discussed
about the demand for inflation the first
reason was an increase in the money
supply in the economy so you will be
knowing that an increase in the money
supply in the economy will result in
increased relative inflation in the
economy that is increased money supply
means increased inflation in the economy
so when will the RBI or the reserve bank
takes contractionary monetary policy
when money supply is born so when
inflation is more the bank would take
contractionary monetary policies in
order to bring down the money supply and
when the rate of inflation is very less
lesser than the minimum what would the
RP do the RBA will increase the money
supply in the economy in order to bring
the inflation level to at least minimum
so contractionary at expansionary
monetary policy contractionary monetary
policy is taken by the RBA when the rate
of inflation is high in the economy and
expansionary monetary policy is taken
when the rate of inflation is very less
in the economy so contractionary policy
contractionary monetary policy will
bring down the money supply in the
economy and expansionary monetary policy
will bring up the money supply in the
economy so now let us see what are the
tools of this monetary policy so first
one is CRR or cash reserve ratio casual
serve ratio means the amount of total
deposits commercial bank has
to keep with the RBA that is percentage
of total deposit the bank has to keep
with the RBA let us now see how CRR
would affect the money supply in the
economy suppose the cash reserve ratio
is four percentage and the total deposit
of bangus hundred rupees so it means
that the bank has to keep rupees 4 with
the RBI as Siara
and out of this hundred now the bank has
only 96 rupees for lending because 4
rupees the bank has kept with the RBI
for Siara so now the bank has already
rupees 96 for lending now let us assume
that the RBA has increased the cash
reserve ratio to rupees 8 now the bank's
total deposit is rupees 100 - cash
reserve ratio will give 92 rupees
so now the band has only rupees 92 for
lending it means that when the cash
reserve ratio increases it will lead to
a decreased money supply in the economy
so an increase in the cash reserve ratio
will lead to a decrease in the money
supply in the economy hope it is clear
for you the second monetary policy tool
is SLR or the statutory liquidity ratio
what is statutory liquidity ratio it is
the percentage of total deposits the ban
has to keep with itself so percentage of
total deposit bank has to keep with
itself let us see an example suppose the
total deposit of the bank is 100 rupees
Ciarra 4 rupees for a percentage so now
bank has 96 rupees for lending so
suppose the SLR s10 pearls 10 percentage
10 percentage of the total deposit that
is rupees 10 so now bank has only 86
rupees for lending this is the first
case in the second case let us
soon that the our bail has increased the
SLR so total deposit is 100 crs-4 - SL
a-- so SLR now the RBA has increased
from ten to fifteen seller is fifteen
that means now the bank has only eighty
one rupees for lending previously it was
eighty six rupees so now it is only
eighty one so what does it mean it means
that an increase in the statutory
liquidity ratio will result in a
decrease in the money supply in the
economy so the RBA will increase the
statutory liquidity ratio when it feels
that there is an excess of money supply
in the economy and it will reduce the
statutory liquidity ratio when it feels
that there is less of money supply in
the economy next monetary policy tools
the bank rate banker it means the rate
at which are be a lends to the
commercial banks right at which are be a
lens to commercial banks so let us see
it with an example suppose the lending
rate of our believers four percentage
now it increased to eight percentage so
with an increased interest rate the
commercial banks will no borrow less
from RBI and when the interest rate is
less it will borrow more from our big so
what does it indicate when band rate is
less commercial banks will bore off more
so this means increased money supply the
commercial banks will borrow more so
that the commercial banks can lend to
the public more so increase money supply
and when our bill increases the bank
rate commercial banks will borrow less
so less borrowing by the commercial bank
means less lending by the commercial
bank to the public that means lesser
money supply so when bank rate increases
money supply in the economy decreases
hope it is clear for you the fourth
monetary policy instrument is rapper a
rapper it means the rate at which the
RBA
to the commercial banks for a short
period RBI to commercial banks for short
period rapper eights are for shorter
period that is the difference between
bank rate and the repo rate so here also
same in the case of bank rate when the
record increases the banks will borrow
less and when commercial banks borrow
less so there will be less money with
the commercial banks for lending to the
public and this will need to decrease in
money supply
when rapper it decreases the commercial
banks will borrow more money this relate
to increase in money supply in the
economy so an increased rapper it will
lead to lesser money supply in the
economy and decreased rapper it will
lead to increase money supply in the
economy
the first monetary policy tool is the
reverse repo rate what is a reversal for
it it is a rate at which the commercial
banks lend to the RBI that is the
commercial banks will give to the RBA so
commercial banks will obviously have
more pressure on the AR way that it
would return the money
so when reverse repo rate is high the
commercial banks will give more money to
the RBI than giving through the public
so when reverse repo rate is high
commercial banks will give more to RBA
so this will suck out money from the
commercial banks which should have been
given to the public now commercial banks
give it to the RBA so this will reduce
the money supply in the economy and when
reverse repo rate is less the banks will
not be willing to give it to the RP
instead it will lend to the public so it
will increase the money supply in the
economy that means an increased reverse
repo rate will decrease the money supply
and decreased inversor porridge will
increase the money supply in the economy
these five monetary policy tools we will
be
cussing in detail when we learned
monetary policy
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you