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On
Managerial Economics
Topics
Inflation and Deflation
National Income
Trade Cycle
Government Control on
Monopoly
Submitted to:
Dr. Raman
PSG IM
Submitted By:
Senthil Subramaniam
PSG IM PT Ist year
1
Types of Inflation
There are three major types of inflation
Demand Pull inflation
Cost-Push inflation
Hyperinflation
Demand Pull Inflation
Demand pull inflation is driven by purchase of goods and services. If the economy is strong the
consumer income rises and demand for goods and services increases,
The rightward shift in demand curve pushes the price of the goods from P0 to P1.
Price rise in finished goods also affects the relative price of the raw materials used for finished
goods.
With demand as constant, shifting the supply curve to the left pushes the price up which causes
inflation. Higher production cost causes the supply curve to shift to left resulting in higher prices.
Leading indicator for the cost-push infation or supply side inflation is commodity prices.
Hyperinflation
The price increase is so much out of control that the concept of inflation goes meaning less.
Example: the recent price rice in Zimbabwe.
Inflation in India :
National Income
National income is the money value of all goods and services produced by a country during a
period of one year. National income consists of a collection of different types of goods and
services of different types.
The main concepts of National Income are: GDP, GNP, NNP, NI, PI, DI, and PCI.
These different concepts explain about the phenomenon of economic activities of the
various sectors of the economy.
Trade Cycle
Topics Covered
1. Prosperity Phase
Stabilization Policy
Business cycle moves between boom and bust peaks. Recession and recovery are the periods
happening between boom and bust. During the business cycle activity, there will a change in
aggregate demand and aggregate supply. Government along with central bank deploy
stabilization policies to control the business cycle.
When the economy is in boom period, there is will be more money supply causing greater
demand for goods and services in the market. Cost of commodity will increase causing increase
in inflation.
When the economy is in recession period, there will be less investment in new projects. Money
supply will come down.
When the economy reaches bust period, there will be no new investments.
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