Over Expansion Of Money Supply Economics Essay

all over Expansion Of Money Supply Economics Essaypuffiness is commonly unders to a faultd as a situation of considerable and mobile general development in the monetary regard ass of the currency over a stream of time. The general scathes are measured through impairment indices. The trend of prices reveals the air of pomposity or deflation. pompousness is statistically measured in foothold of percentage subjoin in the price index- usually a grade or a month.Economist Harry Johnson defines as a substained hold up in price. pomposity grows because of swot in the price of the imported commodities ex variety showable petroleum, gold, etc.personal effects of rising pricesMiddle class family lead be in trouble if a price of things plagiarises faster than their income.Inflation reduces the value of an enthronisation if returns are inadequate to compensate.Attack of Inflation often goes hand in hand with inflamed thrift.Sustained revolt prices to a fault has yearn -term do.If cash is losing its value than businessmen and investors will not invest money for long time. This effects on nations outputive capacity.It back end cause a rapid economic s showtime-down.Types of rising prices in that location are main 5 catagories which devides pretension in several parts. tally to score of inflation jibe to nature of time- time period of occuranceAccording to the scope or coveragesAccording to governments reactionAccording to the causesAccording to the rate of inflationModerate inflation-(a) creeping inflation (b) base on balls inflationRunning inflationGalloping inflationHyper inflationModerate inflationWhen prices rise by slight than 10% (single digit inflation rate) per annum, path inflation occurs. According to Prof. Samuelson, it is a stable inflation and not upright economic problem.it doesnt interrupt the economic balance. Peoples expectations remain much or slight stable in moderate Inflation.Interest rate is never too low or -ve in this situation so money plays its component as a future investment tool.Creeping InflationWhen price rises not more(prenominal) than 3% it is called creeping inflation. It is the mildest form of inflation and withal known as a mild inflation or low inflation.Walking InflationWhen the rate of rising prices is more than the creeping inflation is known as walking Inflation. When prices rise more than 3% unless less than 10% per annum than its walking inflation.Running InflationWhen the movement of prices revive up rapidly, running inflation emerge. Running inflation may book more than 100% rice in a decade. Thus, when prices rise more than 10% a twelvemonth, it is called Running Inflation.Double-digit inflation of 10-20% per annum is called running inflation.Galloping InflationIf prices rise by double or triple digit inflation rate it is called galloping inflation. When prices rise more than 20% and less than 1000%, galloping inflation occurs. It is also referred as JUMPING Inf lation. India is facing this inflation since second 5 year plan period.It is genuinely serious problem. It causes economic distortions and disturbances.Hyper InflationIn this case, prices rise every moment and thither is no limit to the height to which prices exponent rise. Therefore, it is difficult to measure its scale as prices rise by fits and starts.In statistic terms when prices rise more than 1000% it is caalled Hyper Inflation. There is atleast a 50% price rise in a month so that in year it rises about 130 times.It represet the pitiable sink in peoples get strength. It is generated by immese monetary disorder. It is monetary disease. The velocity circular of money increases very fast.Causes of Inflation affix in money communicateInflation is caused by an increase in the supply of money which leads to increase in get.higher the result of nominal money supply, higher the inflation.Increase in expendable incomeWhen disposable ask increases demand will increase which will emerge inflation.Over expansion of money supplyRemarkable degree of correlation among the increase in money supply and the rise in the price level mayb be observed.Increase in ExportsWhen the demand for domestically produced goods increase in foreign country raises the earnings of the industries producing export commodities.Cost-push Inflation here the supply of goods and service are stopped for some or other reason while the demand remains unchanged. This push is cost. Generated by the factors exchangeable wages, profit and material cost in turn this increases the cost of fruit and ultimately the price of product and services.Demand-pull InflationHere peoples demand is continuosly rising and the supply is unchanged or same. Here people are typeset to pay for the demanded goods to satisfy their need.Calculation of inflationInflation can be calculated by many methida save main 3 methods are.CPI- Consumer damage IndexWPI- Wholesale Price IndexPPI- harvest-festival Price I ndexCPI- Consumer Price Indexmeasures changes in the price level ofconsumer goodsandservicespurchased by households.It can be used to index the real value of wages, salaries, pensions, for regulagting prices and for deflacting monetory magnitudes to show changes in real value.CPI=updated cost/base period cost*100WPI- Wholesale Price IndexWPI is the price of a representative basket of wholesale goods. The indian WPI figure is released every 10 days and influances stock and fixed priced markets.WPI focuses on the price of goods traded among corporations sort of than goods bought by consumers which is measured by CPI.The purpose of the WPI is to monitor price movements that hypothecate supply and demand in industry, manufacturing and construction.In India WPI is the indicator for inflation rate.PPI- Product Price IndexThis index measures the pressure on producers due to change in cost of raw -materials.Inflation Rate = (Po-P-1)*100/P-1Here,Po= the present clean price of goods and s ervices.P-1=the price of the products and services existed last year. cut of inflation since 1991 to 2012 course of instructionAnnual Rate1990-199113.811991-199211.881992-19936.311993-199410.241994-199510.221995-19968.981996-19977.251997-199813.171998-19994.841999-20004.022000-20012.722001-20023.82002-20033.42003-20045.42004-20056.42005-20064.42006-20075.32007-20084.72008-200912.442009-201010.22010-20119.42011-20121.4(till July)Reasons of the Inlation in 1990sIncrease in international fossil vegetable oil price.Natural disasters like drought or flood showed an ebbing trend.The main problem of inflation came to head in August 1990.When iraq invaded Kuwait the prices of oil doubled in international market. barter deficit in 1991 rise to 15600 cores.India borrowed from IMF.CUsersmaitriDownloadsindia-inflation-rate.png(source www.google.com)Reasons for Inflation in proto(prenominal) 20th centuryIncrease in oil prices twice during the period. obstinate effects of deficiency of agricu ltural products led to increase in price of Oil get outds and Edible oil.In 2008, Inflation was because of rise in fuel prices, and rise in prices of primary articles. Global food prices also registered a mark rise during this period.Trend of Inflation rates since 1991-2012In 1990-91, the inflation rate rose by 12.1% and got constant at double digits in nonparallel year it means India faced Running Inflation.Similarly Running Inflation India faced until Inflation rate fall to 5% in 1995-96.In 1998-99, there was again rise in prices and inflation was there.In 2002, Inflation was its low rating 1.6% only the upward trend become equable and again the inflation became a cause for concern in the year 2004 when the point to point rise in inflation was 7.7%.In 2006, the Inflation was so high till the starting months of 2007.In 2008, infltion was there because of rose in price of oil and primary articles. Food inflation was there in 2008 as India is the primary importer of the food amo ng the world.In 2009, food cereal grass prices continued to be culprit behind the raising inflation year 2009. There was a great fall from 2008 to 2009 and it was -0.34% if there is negative inflation rate that means purchasing power of people increase but there is lack of supply.In 2010, there was rose in average rate by 1.64% and in 2011 there was rose of 3.16%.Correlation amid gold price, arrant(a) oil price and sawhorse markRelation between gold and dollar markGold and dollar two are ball-shaped currancies. Many national banks hold dollars as a reserve currency. They both are considered stable and besotted.If people are worried for the dollar which will may fall iin future than they should invest in gold. The relationship between both of them is inverse. Buying gold and selling dollar will direct the effect of moving both prices inversly.As the dollars exchange value falls, it takes more dollar to buy gold so dollar gold price rises. When dollars exchange value rises due to any reason it takes fewer dollar to buy a gold.Gold and dollar relationship is strategic but not tactical. Dollar weknesses always turn into gold strength (in long term) but (in short term) gold and dollar both may can fall or rise together. When inflation rises people buy gold which make golds price up.Weakness of dollar make gold strong in long term scenerio and in short-term scenerio there perhaps a condition that dollar and gold will rise and fall together. Whenever inflation comes people buy more and more gold which automatically rise the price of gold.Realtionship between Crude oil prices and dollar (Chart from 1977 to 2003)YearYearly Average1991$20.191992$19.251993$16.741994$15.661995$16.751996$20.461997$18.971998$11.911999$16.552000$27.402001$23.002002$22.812003$27.692004$37.412005$50.042006$58.302007$64.202008$91.482009$53.562010$71.212011$87.482012$83.7 (estimated)Recent trend of crude oil and dollar (8/18/2012)DX_CL_Correlation.jpgIncreasing oil price results in inc rease of inflation. It impacts economy negatively. Higer oil prices are reflected in virtually every finished product as well as food and commodities in general. Crude oil is mainly traded in US dollar and when US dollar prices weakens the crude oil participants push the price of crude higher on the expectations.Effects on demandOil purchases are paid in dollars. all the same demand is dependednt on the domestic price of country which always waver with chnages in dollar. So dollar depreciation reduces the oil price in domestic currancy.This leads to an increase in their real income and an increase in their oil demand. Therefore, the dollar depreciation a priori has a positive impact on oil demand and should contribute to raise the price.Effects on supplyDollar changes affect the price as supposed by the producers less than the one apparent by demanders. Dollar depreciation can spark inflation and income in oil producer countries, the currencies which are linked to US dolalr.The in crease in inflation and the decrease in purchasing power reduce the real disposable income and therefore the income available for drilling, everything else equals. Overall, a dollar depreciation may result in a reduction in oil supply.Overall, depreciation of dollar causes an increase in oil demand and a reduction in supply, mainly on the long run, which tends to shape up oil price.Realtionship between Gold, Crude oil and dollar in inflationAn increase in oil price resukts in inflation which affects the countries those import oil.it affects the prices in general economy. According to a study, the global resource of oil is depleting at an annual rate of 6 per cent while demand is growing at an annual rate of 2 per cent.Era of chinchy oil is over now but now we have to see impact of oil prices on dollar and gold. Up to 1971 central banks were large(p) facility of converting dollar into gold. When this facility was removed, oil producing countries converted dollar into gold.There is positive relation between gold and oil since last 5 years. With recent increase in oil, relationship between gold n oil is not moving in cycle. if the price of oil increase due to supply and demand mismatch and dollar declines than gold/ gold price will increase.