can any budy tel me the concept of inflation .what is diff between inflation & diflation.it is correct that in inflation value of money gets down.
3 Replies
CA Thomas Raju Paravada
(Chartered Accountant)
(570 Points)
Replied 21 October 2008
Inflation is an increase in the price of a basket of goods and services that is representative of the economy as a whole.
What causes Inflation on a whole ?
>The supply of money goes up.
>The supply of other goods goes down.
>Demand for money goes down.
>Demand for other goods goes up.
S.Srinivasaraghavan
(Chief Financial Officer and Co)
(11318 Points)
Replied 21 October 2008
IN addition over dependence on imported stuff without matching export revenues can also contribute.
Rohit Khare
(student)
(111 Points)
Replied 21 October 2008
Hi,
Basically inflation takes place due to a concept known as ''Psychological Law of Consumption''. It means that if liquidity circulating in the economy is high then propensity to consume of consumers increases at a higher pace. So demand for goods also increases. However supply of goods doesnot increase with that pace. This results in more demand and supply situation thus resulting into general price rise and inflation sets in. The measures to overcome the sutuation include sell of bonds/ treasury bills by RBI in openmarket which are basically Open Market Operations or even an increase in CRR as a result of which liquidity with banks reduces and interest rates go up. Inflation results in reduced purchasing power of money.
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