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A ASSIGNMENT ON TRADE OFF BETWEEN INFLATION & UNEMPLOYMENT

SUBMITTED BY: PARIKH ARIST J SUBMITTED TO: PROF JAYDEEP SIR STD DIV ROLL NO : MBA SEM-I :C : 100

Bhagwan Mahavir Institute of Management Affiliated To Gujarat Technological University

YEAR 2012-13

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INDEX
SR NO TOPIC PAGE NO

CH 1

INTRODUCTION
INFLATION UNEMPLOYMENT CURRENT SITUATION IN INDIAN ECONOMY

CH 2

TOPIC OF DISCUSSION
TRADE OFF BETWEEN INFLATION AND UNEMPLOYMENT SHORT RUN EFFECTS OF MONETARY INJECTIONS POLICY INSTRUMENTS USED BY POLICYMAKERS

CH 3

CONCLUSIONS

CH 4

BIBLIOGRAPHY
BOOKS SITES

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CH 1 INTRODUCTION

INFLATION:DEFINITION:The overall general upward price movement of goods and services in an economy (often caused by a increase in the supply of money), usually as measured by the Consumer and Producer Price Index.

MEANING:Inflation refers to a continuous rise in general price level which reduces the value of money or purchasing power over a period of time. It is the state where value of money is falling, it means too much of money chasing few goods.

UNEMPLOYMENT:DEFINITION:An economic condition marked by the fact that individuals actively seeking jobs remain unhired. Unemployment is expressed as a percentage of the total available work force. The level of unemployment varies with economic conditions and other circumstances.

MEANING:Percentage of total workforce who are unemployed and are looking for a paid job. Unemployment rate is one of the most closely watched statistics because a rising rate is seen as a sign of weakening economy that may call for cut in interest rate. A falling rate, similarly, indicates a growing economy which is usually accompanied by higher inflation rate and may call for increase in interest rates.

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CURRENT SITUATION IN INDIAN ECONOMY:-

INDIA INFLATION RATE:The inflation rate in India was recorded at 7.55 percent in August of 2012. Historically, from 1969 until 2012, India Inflation Rate averaged 7.75 Percent reaching an all time high of 34.68 Percent in September of 1974 and a record low of -11.31 Percent in May of 1976. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy. This page includes a chart with historical data for India Inflation Rate.

INDIAN UNEMPLOYMENT RATE:The unemployment rate in India was last reported at 3.8 percent in 2010/11 fiscal year. Historically, from 1983 until 2011, India Unemployment Rate averaged 7.57 Percent reaching an all time high of 9.40 Percent in December of 2009 and a record low of 3.80 Percent in December of 2011. The unemployment rate can be defined as the number of people actively looking for a job as a percentage of the labour force.

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CH 2 TOPIC OF DISCUSSION

TRADE OFF BETWEEN INFLATION AND UNEMPLOYMENT:-

At higher level of prices, in the long run, the primary effect of increasing the quantity of the money, the short run story is more complex and controversial. The line of reasoning leads to one final economy wide tradeoff between inflation and unemployment.

Although some economist still questions these ideas, most accept that society faces a short run tradeoff between inflation and unemployment. This simply means that, over a period of a year or two, many economic policies push inflation and unemployment in opposite direction. Policymakers face this tradeoff regardless of whether inflation and unemployment both start out at high levels (as they were in 1980s), at low levels (as they were in the late 1990s), or someplace between. This short run tradeoff lays an important role in business cycle the irregular and largely unpredictable fluctuations in economist activity, as measured by the production of goods and services or the number of people employed.

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SHORT RUN EFFECTS OF MONETARY INJECTIONS:-

Most economists describe the sort run effects of monetary injections as follows:

Increasing the amount of money in the economy stimulates the overall level of spending and thus the demand of goods and services.

Higher demand may over cause the firms to raise their prices, but in meantime, it also encourages them to increase the quantity of goods and services they produce and to hire more workers to produce those goods and services.

More hiring means lower unemployment.

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POLICY INSTRUMENTS USED BY POLICYMAKERS:-

Policymakers can exploit the short run tradeoff between inflation and unemployment by using various policy instruments. Policymakers can influence the combination of inflation and unemployment that the economy experiences. Because these instruments are so powerful, how policymakers should use these instruments to control the economy is also a subject of debate. Some of the instruments frequently used by policymaker are as follows:

Government Spending:Government Spending are the expenses incurred by the government for a said period of interval for the development of the nation. At the time of deciding the budget the Government declares the expected spending they are going to make for a said period of time, i.e. if the government spending is high the flow of money is high in the economy and so shows inflation and affects the tradeoff between the inflation and unemployment.

Amount of Taxes:The Government levys some taxes on the business firms and public so as the Government can use it as a source of revenue for the country. The amount of taxes affects the inout flow of Funds and so affects the rate of inflation and unemployment.

Amount of currency Printed:Each year the Government decides to dispose some amount of currency and print new ones according to their need, if the flow of currency in the economy is too high it depicts inflation and therefore it affects the tradeoff between inflation and unemployment and vice versa.

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CH 3 CONCLUSION
As a Policymaker if I need to take a decision to reduce the inflation rate I would likely look forward to certain points like the sectors affected, current situation of Economy, Economical Requirements and Other factors that need to be taken into consideration.

First of all a reduction in the inflation shows that the flow of money would fall and so prices of goods and services which directly would affect the employment in the economy. If the economic condition of the country is stable it means there are subsequent amount of job opportunities available to the people then the reduction in the inflation could turn out as a good decision as it wont affect more to the employment rate and also would help to turn the prices of the necessary goods and services at a low cost.

Secondly if the inflation is turned out high then it shows that there is rise in the flow of money and prices of goods which turns out good opportunities of employment in the economy. But if the Economic conditions of the country are not stable then the people would oppose this price hike in goods and service which would create a political disturbance. Mostly in developing countries this type of problems are seen where the economy is growing and demanding employment opportunities, but the people are price sensitive, but here the developed countries hardly seem to be affected by such situations.

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CH 4 BIBLIOGRAPHY

BOOKS:Economics for Managers Ch.1 Ten Principles of Economics Pg no 30

SITES:hhttp://www.tradingeconomics.com/india/unemployment-rate http://www.tradingeconomics.com/india/inflation-cpi ttp://www.investorwords.com/2452/inflation.html http://www.investorwords.com/5838/unemployment.html