Inflation and
Unemployment
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Inflation
Increase in the general level of prices of
Goods and Services
Purchasing power decreases in case of
inflation
During inflation the debtor/borrower benefits more than the lender
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Inflation
Purchasing power decreases in case of
inflation
During inflation the debtor/borrower benefits more
than the lender
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Irwing Fisher:
Money illusion concept
N
MV = PT GDP Deflator = × 100
R
During inflation the debtor/borrower benefits more than the lender
Lender Debtor/Borrower
Rs 10,000
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Quantity Theory of Money
Velocity of Circulation All Transactions
How many times a dollar, Euro etc. is All the goods and Services
spent purchasing finished goods and sold within an Economy
services.
M×V=P×T
Price Level
Money Supply
The price level of all the services
All the money in the Economy
in the Economy
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Types of Inflation
1. Creeping: 3-4%
2. Walking: 4-10%
3. Running: 10-20%
4. Galloping: 20-100%
5. Hyper: 100%
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Cause of Inflation
Demand Pull Cost Push
• Demand Side Inflation. • Supply Side Inflation
• Too Many Dollars • Increase in cost of any
Chasing too many factors of Production
goods. and Input Cost.
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WPI
1st time published: 1942
(pre-Independence)
Department of
Base Year: 2011-12 Promotion of Industry
and Internal Trade
Published by: Office of
Economic Advisor ( OEA )
Ministry of Commerce
and Industry
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CPI
Base Year: 2011-12
Published by: National
Statistic Office (NSO)
Ministry of Statistics and
Program Implementation
(MoSPI)
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CPI
Base Year: 1986-87
CPI: Industrial workers
CPI: Agricultural workers Labour Bureau
CPI: Rural workers
Ministry of Labour
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• Combined
Base Year : 2012
CPI • Urban
NSO (MoSPI)
• Rural
RBI uses CPI (combined) to target
inflation
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Measurment of Inflation
WPI CPI
• Wholesale Price Index • Consumer Price Index
• More Weightage to • More Weightage to Food
manufactured Goods Items
• Does not captures the • Checked from
changes in prices of consumers perspective.
services. • Services
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IIP
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8 core industries have 40% contributions
1. Refinery products
2. Electricity
3. Steel
4. Crude oil
5. Natural gas
6. Cement
7. Fertilizers
8. Crude Oil
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Disinflation
Rate of inflation is decreasing
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Deflation
• Opposite of inflation
• Fall in the general level of prices
• Purchasing power increases
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Philips Curve:
Inflation and Unemployment have inverse
relationship
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Stagflation
Inflation Unemployment
No economic activity
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• Great Depression: 1929-1939
• Great Recession: 2007-2009
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UNEMPLOYMENT
It refers to a situation when a person actively searches for the job
but unable to find work
NSSO Uses 3 Methods to measure Unemployment
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Types of Unemployment
1. Structural unemployment: There is a mismatch
between worker’s skill and availability of job.
Eg: Technology advancement, like machinery
replacing farmer labour
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Types of Unemployment
2. Educated unemployment: Degree Unemployment,
seen in Urban part of India
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Types of Unemployment
3. Frictional Unemployment: Type of unemployment
while searching for a new job
Eg: An employee leaving current job to move to a
better one (seen in Urban)
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Types of Unemployment
4. Disguised Unemployment: Hidden unemployment
when some people seem to be employed but are not,
marginal productivity is zero
Eg: Agriculture sector
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Types of Unemployment
5. Cyclical unemployment:
Recession in economy (upturn and downturn)
When economy revives, there is opportunity to employment, seen in Urban
Eg: Great Recession
Sub-Type
Seasonal Unemployment:
Employment based on the seasonal basis Seen
more rural part of India
Eg: Light or fireworks sellers during Diwali
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WHAT IS CLASSICAL
UNEMPLOYMENT
It is also known as real wage unemployment. It occurs
when the real wage for a job is too high, which leads to
more job seekers than job openings
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WHAT IS NATURAL
UNEMPLOYMENT
Refers to the lowest unemployment level a healthy
economy can sustain without causing inflation.
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MARGINAL Vs MAIN WORKER
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ORGANISED Vs UNORGANISED
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One Liners
The Bhagwati Committee of 1973 presented a report on unemployment. The
committee was officially named the Task Force on Employment and Income
Distribution.
MGNREGA Provides 100 Days of Employment
According to recent studies, in India, the majority of unemployed people are at
the secondary education and above level.
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