SILVER OAK COLLEGE OF ENGG. AND TECH.

TOPICS: (1) DIFFERENCE BETWEEN MICRO AND MACRO ECONOMICS (2) MEANING,TYPES, CAUSES AND MEASURES TO CONTROL INFLATION.

SUBMITTED TO: SHRUTA LADOLA SUBJECT: Engineering Economics and Management(EEM) SUBMITTED BY: Mamta Arora ENROLL NO.: DEPARTMENT: E.C

MICRO ECONOMICS Microeconomics is the study of economics at a smaller scale. It is the study of economics at an individual, group or company level. It is a study of one particular unit rather than all the units combined together. It focuses on issues that affect individuals and companies such as supply and demand for a specific product, the production that an individual or business is capable of, or the effects of regulations on a business.

MACRO ECONOMICS Macro economics is the study of large scale economic issue. It is the study of a national economy as a whole. It is the branch of the economics which studies the economic behavior of not only one particular unit, but of all the units combined together.

It aggregates all and study as a single unit. So,it is also called as “aggregative economics” It focuses on the issues that affect the economy as a whole. For example, it include unemployment rates, the gross domestic product of an economy, and the effects of exports and imports.

MEANING OF INFLATION Inflation is the sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. So inflation reflects a reduction in the purchasing power per unit of money-a loss of real value in the medium of exchange and unit of account within the economy.

Inflation occurs due to an imbalance between demand and supply of money, changes in production and distribution cost or increase in taxes on products. High prices of day to day goods make it difficult for consumers to afford even the vasic commodities in life. Price inflation is measured by the inflation rate, which is calculated year on year basis.

TYPES OF INFLATION There are four different types of inflation: 1) Demand-pull inflation 2) Cost-push inflation 3) Pricing power inflation 4) Sectorial inflation

DEMAND-PULL INFLATION It occurs when the total demand for goods and services in an economy exceeds the available supply, so the prices for them rise in the market economy. Every war produces this type of inflation because demand for war materials and manpower grows rapidly without comparable shrinkage elsewhere. Other types of inflation occur more readily in conjunction with demand pull inflation.

COST PUSH INFLATION The cost of production rise, for one reason or another, and force up the prices of finished goods and services. Often a rise in wages in excess of any gains in labor productivity is what raises unit costs of production and thus raises prices. This is less common than demand-pull, but can occur independently as well as in conjunction with it.

PRICING POWER INFLATION It is also called “administrated price inflation” It occurs whenever businesses in general decide to boost their prices to increase their profit margins. It might be called oligopolistic inflation, because it is oligopolies that have the power to set their own prices and raise them when they decide the time is ripe.

SECTORIAL INFLATION The term applies whenever any of the other three factors hits a basic industry causing inflation. Since the industry in which inflation has occurred is a major supplier to many other industries, the price of their products also increases and hence inflation also occurs in that industry. So it can be said that though inflation was started in one sector, it has been propagated to other sectors.

CAUSES OF INFLATION 1)Unfavorable agricultural production: Indian agriculture is largely dependent on monsoon. In case of drought or famine the agricultural production is adversely affected. Due to this, price of agricultural as well as agro- based industrial products increases. 2) Hoarding: Most of the wholesalers and businessman practices hoarding of commodities which leads to inflation.

3)Deficit financing: If the government resorts to deficit financing in order to meet its developmental expenditure, then it makes available funds for the growth of economy. 4)Population and Black money: Rapid growth of population causes inflation. Tax is the most significant and major source of public revenue. It is a very important cause of rise in the basic food prices in a developing country like India.

5) Upward revision of administered prices: Commodities produced in the public sector have government administration of price level. The government keeps on raising prices in order to compensate the losses. 6) Increase in indirect taxes: Increase in indirect taxes like sales tax, VAT, service tax etc. increases the cost of production for the producers. 7) Increase in wage rates: It causes the producers to raise the prices of their goods to balance their profits.

MEASURES TO CONTROL INFLATION (1)MONETARY MEASURES: Monetary measures are taken by the government in order to control inflation. In India, it is implemented by Reserve Bank of India. Main tools of monetary measures of credit control include Bank Rate Policy, Open market Operations, Cash Reserve Ratio.

(2) FISCAL MEASURES: Fiscal measures relates to public revenue and public expenditure and matters related thereto. Important tools of fiscal measures are Public Revenue and Public Expenditure. The major sources from where public revenue is generated include income tax, wealth tax, excise duty and sales tax.

(3) OTHER MEASURES: Other measures may be short term or long term. Short terms concerns with the distribution of essential commodities on ration cards at reasonable price. Long term includes population and economic planning. Population planning is used to aware the people about family planning.