Search results for: “”

mujhe upsc ki coaching karna h

The Cost of Inflation

• The inflation is considered to be bad for an economy mainly because it destroys the purchasing power of the money. When Price rise, each Rupee that you had will but less quantity of goods and services. Therefore, inflation destroys the real income of the people and makes them worse off.
• The argument is particularly true for a country like India, which has a large informal sector and agriculture sector. Since most of the population is employed in informal and agriculture sector where minimum wage laws and social security benefits do not apply, the people in such sectors suffer the most due to inflation. The wages in these sectors are not indexed for inflation. Thus, when the price rises their wage does not rise, and they lose due to a reduction in real income on the one hand and no rise in wages on the other.

There is also two associated social cost of inflation.

• The Shoe Leather Cost

Suppose in an economy the inflation is rising at the rate of 5% from the past few years. In such a case, everybody will expect the inflation to be 5% in future also. In such a case, all the economic transactions will be done adjusting for 5% inflation. In such an anticipated inflation scenario, the only cost of inflation will be shoe leather cost.

The Shoe Leather Cost occurs because of the cost associated with holding money during inflation. Since inflation destroys the real power of money, and cash holding does not pay any interest, people will start depositing their money in banks to earn interest rate.

The less money they hold in cash, the more they have to visit banks or ATMs to withdraw money. Since going to the bank is not free of cost both in terms of time and the transaction cost levied by banks on ATM usage, counter withdrawals, as well as the cost of travel to banks will all add to Shoe Leather Cost.

• Menu Cost

Menu cost is another social cost associated with anticipated inflation. The name menu cost is derived from the restaurants business. Menu cost arises because inflation makes the business change their listed price often. The change requires the firm to bear expense related to printing of new catalogues, new price list etc. they also have to incur expenditure on advertisement to inform customers about their new prices.

Effects of Inflation on Different Sections

By
Himanshu Arora
Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

All aspirants who are giving tomorrow’s test should discuss all there doubts/queries about any question on this thread and not in the comments section of the test

Around 20 questions of the test can be solved using Tikdam method

Tikdams explanations in those selected questions are given in the explanation column itself

By closely observing those questions after every test you will gradually learn the art of Tikdams which will assist you in clearing the UPSC prelims

Highlights of tomorrow’s test:

Q.1) Which of the following statements about Mahalwari system are correct?

1. The village headmen was responsible for direct payment of revenue to the state.

2. It was introduced in Central Province, North-West Frontier, Agra, Punjab, Gangetic Valley, etc of British India.

3. It was introduced by Captain Alexander Reed.

Select the correct answer using the codes given below

a) 1, 2 and 3

b) 1 and 3 only

c) 2 and 3 only

d) 1 and 2 only

 

Q.2) The images of Shiva represented in various forms like Nataraja, Gangadhara, Ardhanareesvara, Somaskanda and Trimurthi can be found in which of the following places?

a) Ajanta Caves

b) Ellora caves

c) Elephanta Caves

d) None of the above

Q.3) Consider the following statements about Wangala Festival

1. It is an annual post-harvest festival of the Garos tribes.

2. It is celebrated in Manipur.

Which of the statements given above is/are correct?

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Q.4) Consider the following statements with regard to the Jurisdiction of Supreme Court

1. In case of federal disputes, the Supreme Court has exclusive original jurisdiction.

2. In case of Writs, jurisdiction of the Supreme Court is neither original nor exclusive

Which of the statements given above is/are correct?

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Best of luck!

Link for the test: Click2Attempt  (Let us know your score in comments)

We have started our Open SIP program in conjunction with our PAID program (Click2Know all details of the program)

We will be running this special FREE initiative on daily basis providing students with revision questions for static subjects as well as current affairs starting from June 2017

Test 30 as per schedule (Click2View) is MISC Test 6

Liked the test? You can join our FLT program containing more such high-level questions. The module contains 11 FLTs (8 paper 1 TS + 3 CSAT)

Know all details about the program and join here: Click2Join

Want to do quick revision for Prelims? Join our SIP Comprehensive or SIP Mini modules giving you Static & Dynamic subjects coverage through video lectures

SIP Comprehensive- Samanvaya + Lectures + Notes + FLTs + CA Tests: Click2Join

SIP Mini- Samanvaya + Lectures + Notes: Click2Join

Inflation in India

Understanding Inflation

Back to Basics: In 1947, when India got independence, the Indian economy was suffering from low growth, poverty and resource shortages. The salary of an average Indian was very low. Ask your Grand Parents ‘how much they use to earn in the 1950’s?

Today, an average Indian earns 100 times more than what his grandparents use to earn. Does it mean that the standard of living of the people has also risen 100 times? Before reaching to such a conclusion, one must remember that the prices of goods and services in the economy has also risen.

In 1950’s a Delhi-Mumbai air ticket cost in some hundreds, today it cost in thousand. Similarly, the price of Wheat was in few Paisa; it cost around Rupee 50/kg. Therefore, it is not clear from income, that whether the standard of living of people have risen or not.

To compare the salary of your grandparents to yours, we need some measure of purchasing power or price. The meaningful measure that can perform the task is “Consumer Price Index”.

Consumer Price Index: CPI is used to monitor changes in the cost of living over time. When the CPI rises, the average Indian family has to spend more on goods and services to maintain the same standard of living. The economic term used to define such a rising prices of goods and services is Inflation.

Inflation: Inflation is when the overall general price level in the economy is increasing.

Inflation Rate: Inflation Rate is the percentage change in the price level from the previous period. If a normal basket of goods was priced at Rupee 100 last year and the same basket of goods now cost Rupee 120, then the rate of inflation this year is 20%.

Inflation Rate= {(Price in year 2 – Price in year 1)/ Price in year 1} *100

Whole sale Price Index: WPI is used to monitor the cost of goods and services bought by producer and firms rather than final consumers.

GDP Deflator: Another important measure of calculating standard of living of people is GDP Deflator. GDP Deflator is the ratio of nominal GDP to real GDP. The nominal GDP is measured at the current prices whereas the real GDP is measured at the base year prices. Therefore, GDP Deflator reflects the current level of prices relative to prices in a base year. Example, In India the base year of calculating deflator is 2011-12.

The Difference

By
Himanshu Arora
Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University