CBSE Class 11 Economics Inflation Problems and Policies Assignment Set A

Read and download free pdf of CBSE Class 11 Economics Inflation Problems and Policies Assignment Set A. Get printable school Assignments for Class 11 Economics. Standard 11 students should practise questions and answers given here for Economics in Grade 11 which will help them to strengthen their understanding of all important topics. Students should also download free pdf of Printable Worksheets for Class 11 Economics prepared as per the latest books and syllabus issued by NCERT, CBSE, KVS and do problems daily to score better marks in tests and examinations

Inflation: It is a situation of persistent & considerable rise in prices, leading to a fall in purchasing power of money.

Deflation: It occurs when prices are declining over time. It is a situation when the supply of goods rises faster than the supply of money.

Stagflation: It is a condition of slow economic growth & relatively high unemployment, accompanied by a rise in prices.


Types of Inflation:

• Demand Pull Inflation: It arises when there is an excess of demand for goods over their supply. When there is a persistent increase in demand & supply does not increase proportionately, then price tends to rise.


Causes for Demand Pull Inflation:

¶ Increase in Public Expenditure: When people have confidence in the economy, they start spending more & save less. Also they resort for lending to fulfill various demands like home loans etc. This leads to an increase in the overall demand in the economy.

¶ Increase in Govt. Spending: As the government spends more in any particular segment of the economy, it drives up demand. For example, military spending raises prices for military equipment.

¶ Increase in Money Supply: A fall in interest rates may stimulate too much demand – for example in raising demand for loans or in causing rise in house price inflation.

 Improved business confidence: It prompts firms to raise prices and achieve better profit margins

¶ Increase in Population: With increasing population, the demand for basic goods & services increase at a much faster pace than the increase in the supply. This leads to demand pull inflation.

¶ Cost Push Inflation: It occurs when rise in price is due to rise in the cost of production. In this type of inflation, supply factors play an important role. Once, this type of inflation sets in one industry, it spreads to all other industries of an economy.

 Causes for Cost Push Inflation:

 Rising Labor Cost: Increase in the wage rate, especially in the labor intensive industry, leads

 Higher indirect taxes imposed by the government: for example a rise in the specific duty on alcohol and cigarettes, an increase in fuel duties. These taxes are levied on producers who pass this on to the consumers by raising the prices of the products.

 Creating Monopolies: cost-push inflation can be created by companies that achieve a monopoly over an industry. This has the same effect as reducing the supply, because the company controls the supply of that good or service.

¶ Depletion of Inputs: A fall in the availability of inputs due to their over usage also leads to an increase in their pieces resulting in an increase in cost of production.
Measures of Inflation/ Indicators of Inflation

• Consumer Price Index (CPI): Consumer Price Index measures the increase in the price of a given "basket" of goods and services purchased by the average consumer. The percentage increase in the price for these goods in one year is the inflation rate. If the percentage increase is negative, then it’s called deflation rate.

 Wholesale Price Index: An index that measures and tracks the changes in price of goods in the stage at wholesale level. It refers to a mix of agricultural and industrial goods at various stages of production and distribution, including import duties.

 Gross Domestic Product Deflator: It accounts for inflation by converting output measured at current prices into constant prices. The GDP deflator shows how much a change in the base year's GDP relies upon changes in the price level.

Whole Sale Price Index

For measuring inflation level of any country, wholesale price index is mostly taken into consideration. All commodities to which the index relates are classified into three groups:

 Primary articles consisting of food, non food & minerals

 Fuel consisting of power, light & lubricants

 Manufactured products

It has been noticed from the past trends that growth rate of inflation in food items & fuel is higher than in case of manufacturing products.

Effects/ Problems of Inflation:

• Micro Level- On Individual

¶ Fall in Purchasing Power: Purchasing power means the quality of goods & services one can buy from his fixed income. Inflation leads to reduction in the purchasing power, particularly of the fixed income groups.

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