Page |1

ECONOMIC AND LEGAL ANALYSIS OF INFLATION AND

DEFLATION
 Page |2

TABLE OFCONTENTS

1. INTRODUCTION…………………………………………....4
2. OBJECTIVE OR AIM OF THE STUDY……………………..5
3. SIGNIFICANCE AND BENEFIT OF THE STUDY…………5
4. RESEARCH PROBLEM………………………………………5
5. REVIEW OF LITERATURE…………………………………..5
6. RESEARCH METHODOLOGY……………………………….5
7. HYPOTHESIS…………………………………………………..5
8. CHAPTERISATION …………………………………………...7
9. CONCULSION………………………………………………….24
10. BIBILIOGRAGHY………………………………………………25
 Page |3

Inflation:

The word Inflation took its origin from a Latin word inflare means blow into. A general
increase in prices and fall in the purchasing value of the money. Inflation is the rate at which
the general level of prices for goods and services is rising and consequently, the purchasing
power of currency is falling.
Deflation:

The word deflation took its origin from a Latin word deflare or deflat means blown away.
Reduction of the general level of price in an economy. Deflation is a constriction in the
supply of coursed cash inside an economy, and in this way the inverse of inflation. In times
of deflation, the obtaining force of money and wages are higher than they generally would
have been. This is particular from however like value emptying, which is a general reduction
in the value level, however the two terms are frequently mixed up for each other and utilized
reciprocally.

If the price of goods and services rise it is known as inflation, whereas, deflation occurs when
those prices decrease. The balance between the two economic conditions is delicate, and an
economy can quickly swing from one situation to the other.

Inflation is caused when goods and services are in high demand, creating a drop in
availability. Consumers are willing to pay more for the items they want, causing
manufacturers and service providers to charge more. Supplies can decrease for many reasons:
A natural disaster can wipe out a food crop or a housing prosperous can exhaust building
supplies, among other situations.

Deflation occurs when too many goods are available or when there is not enough money
circulating to purchase those goods. For instance, if a particular type of car becomes highly
popular, other manufacturers start to make a similar vehicle to compete. Soon, car companies
have more of that vehicle style than they can sell, so they must drop the price to sell the cars.
Companies that find themselves stuck with too much inventory must cut costs somewhere,
which often leads to layoffs. Unemployed individuals do not have enough money available to
purchase expensive items, which continues the trend.

When credit providers detect a decrease in prices, they often reduce the amount of credit they
offer. This creates a credit crisis where consumers cannot access loans to purchase big-ticket
items, leaving companies with overstocked inventory and leading to further deflation.
 Page |4

Deflation can lead to an economic decline or depression, and the central banks usually work
to stop deflation as soon as it starts.
In this project the researcher would like to discuss about the causes, types and reduction
methods of inflation and deflation.
 Page |5

CHAPTERIZATION

INFLATION………………………………………………………..8-17

 DEFINITION………………………………………………..8
 INFLATION IN ECONOMICS……………………………..8
 ANALYSIS OF INFLATION: ……………………………...9
 CONCEPTS OF INFLATION……………………………….10
 CAUSES OF INFLATION…………………………………..11
 TYPES OF INFLATION……………………………………..14
 EFFECTS OF INFLATION…………………………………..17

DEFLATION………………………………………………………….18-

 MEANING……………………………………………………..18
 DEFALTION IN ECONOMICS……………………………….18
 ANALYSIS OF DEFLATION…………………………………18
 CAUSES OF DEFLATION…………………………………….19
 EFFECTS OF DEFLATION…………………………………...22
 Page |6

INFLATION:

Definition:

Inflation is the percentage change in the value of the Wholesale Price Index (WPI) on a year-
on year basis. It effectively measures the change in the prices of a basket of goods and
services in a year. In India, inflation is calculated by taking the WPI as base.

Inflation occurs due to an imbalance between demand and supply of money, changes in
production and distribution cost or increase in taxes on products. When economy experiences
inflation, i.e. when the price level of goods and services rises, the value of currency reduces.
This means now each unit of currency buys fewer goods and services. It has its worst impact
on consumers. High prices of day-to-day goods make it difficult for consumers to afford even
the basic commodities in life. This leaves them with no choice but to ask for higher incomes.
Hence the government tries to keep inflation under control.1

Inflation in economics:

Inflation is the rate at which the general level of prices for goods and services is rising and,
consequently, the purchasing power of currency is falling. Central banks attempt to limit
inflation, and avoid deflation, in order to keep the economy running smoothly.

According to Webster’s New Universal Unabridged Dictionary published in 1983 the second
definition of “inflation” after “the act of inflating or the condition of being inflated” is: “An
increase in the amount of currency in circulation, resulting in a relatively sharp and sudden
fall in its value and rise in prices: it may be caused by an increase in the volume of paper
money issued or of gold mined, or a relative increase in expenditures as when the supply of
goods fails to meet the demand.

The American Heritage Dictionary of the English Language, Fourth Edition, Copyright, 2000
Published by Houghton Mifflin Company says: Inflation is a persistent increase in the level
of consumer prices or a persistent decline in the purchasing power of money, caused by an
increase in available currency and credit beyond the proportion of available goods and

1
http://economictimes.indiatimes.com/definition/Inflation
 Page |7

services. In this definition, inflation (rising prices) would appear to be the consequence or
result, rather than the cause.2

Analysis of inflation:

Inflation is a risky situation for any economy since it faces a crisis in terms of scanty supply
of products whereas the demand for goods and services are on a rise. The supply of money
increases and that is precisely the reason behind the devaluation of money which in turn
negatively affects the demand of the masses. Inflation Analysis contains a vivid description
of the factors that are responsible for inflation. The analysts assess the situations and the
various factors regarding inflation. The biggest problem is to maintain a stability in the price
in general. To maintain stability the monetary policy must be flawless and the government
must continue to formulate or if required may even renovate the monetary policies with a
view to stabilize the prices. The effort is put mainly to maintain the stability in the areas
where Euro is the medium of transaction. The analysis of inflation is based on certain
structural models formulated by the Central Bank.

2
https://inflationdata.com/articles/2010/07/21/real-definition-inflation/
3
http://www.tradingeconomics.com/india/inflation-cpi
 Page |8

Concepts of inflation:

1. Inflation:
It is just opposite to inflation. Deflation is said to exist when there is persistent downward
movement in the price level. In other words deflation, therefore, can be called falling prices
and not low prices.
2. Reflation:
Reflation is a moderate degree of controlled inflation. Cole has defined it as inflation
deliberately undertaken to relieve a depression. When price has come down
abnormally so low that govt. activity ceases to be profitable. The currency authority
may adopt measures to put more money into circulation with the view to raising
prices. This is one of the remedies to relieve depression.
3. Stagflation:
Stagflation is derived from two words stagnant and inflation. There is an increase in
price level and decrease in the output and employment. Rise in prices and stagnant
inflation run side by side. The rising costs of inputs push the prices upwards causing
increase in price level without a growth in output and reduction in unemployment. In
this situation, the prices are rising but at the same time output and employments are
coming down, this situation is called stagflation.
4. Disinflation:
 Page |9

Refers to the situation when an attempt is made to bring down the prices moderately
from high level. So the govt. adopts various kinds of monetary and facial measures to
bring the prices without causing unemployment in the country. We call it
disinflation.4

Causes of inflation:

Inflation is mainly caused by excess demand/ or decline in aggregate supply or output.

Former leads to a rightward shift of the aggregate demand curve while the latter causes
aggregate supply curve to shift leftward. Former is called demand-pull inflation (DPI), and
the latter is called cost-push inflation (CPI). Before describing the factors that lead to a rise in
aggregate demand and a decline in aggregate supply we like to explain “demand-pull” and
“cost-push” theories of inflation.

I. Demand-pull inflation:
There are two theoretical approaches to the Demand-pull inflation—one is classical
and other is the Keynesian.
According to classical economists or monetarists, inflation is caused by an increase in
money supply which leads to a rightward shift in negative sloping aggregate demand
curve. Given a situation of full employment, classicists maintained that a change in
money supply brings about an equiproportionate change in price level. That is why
monetarists argue that inflation is always and everywhere a monetary phenomenon.
Keynesians do not find any link between money supply and price level causing an
upward shift in aggregate demand.
According to Keynesians, aggregate demand may rise due to a rise in consumer
demand or investment demand or government expenditure or net exports or the com-
bination of these four components of aggregate demand. Given full employment, such
increase in aggregate demand leads to an upward pressure in prices. Such a situation
is called demand pull inflation. Just like the price of a commodity, the level of prices
is determined by the interaction of aggregate demand and aggregate supply.

4
http://science.blurtit.com/116880/explain-different-concepts-of-inflation
 P a g e | 10

Demand-pull inflation originates in the monetary sector. Monetarists’ argument that

“only money matters” is based on the assumption that at or near full employment
excessive money supply will increase aggregate demand and will, thus, cause
inflation. An increase in nominal money supply shifts aggregate demand curve
rightward. This enables people to hold excess cash balances. Spending of excess cash
balances by them cause’s price level to rise. Price level will continue to rise until
aggregate demand equals aggregate supply. Keynesians argue that inflation originates
in the non-monetary sector or the real sector. Aggregate demand may rise if there is
an increase in consumption expenditure following a tax cut. There may be an
autonomous increase in business investment or government expenditure. Government
expenditure is inflationary if the needed money is procured by the government by
printing additional money.
Other factors are growth of population stimulates aggregate demand. Higher export
earnings increase the purchasing power of the exporting countries. Additional
purchasing power means additional aggregate demand. Purchasing power and, hence,
aggregate demand may also go up if government repays public debt. Again, there is a
tendency on the part of the holders of black money to spend more on conspicuous
consumption goods. Such tendency fuels inflationary fire.
 P a g e | 11

II. Cost-push inflation:

In addition to aggregate demand, aggregate supply also generates inflationary process.
As inflation is caused by a leftward shift of the aggregate supply, we call it Cost-push
inflation. Cost-push inflation is usually associated with non-monetary factors. Cost-
push inflation arises due to the increase in cost of production. Cost of production may
rise due to a rise in cost of raw materials or increase in wages. However, wage
increase may lead to an increase in productivity of workers. If this happens, then the
AS curve will shift to the right- ward not leftward—direction. We assume here that
productivity does not change in spite of an increase in wages. Such increases in costs
are passed on to consumers by firms by raising the prices of the products. Rising
wages lead to rising costs. Rising costs lead to rising prices. And, rising prices again
prompt trade unions to demand higher wages. Thus, an inflationary wage-price spiral
starts.
One of the important causes of price rise is the rise in price of raw materials. For in-
stance, by an administrative order the government may hike the price of petrol or
diesel or freight rate. Firms buy these inputs now at a higher price. This leads to an
upward pressure on cost of production. Increase in tax rates also leads to an upward
pressure in cost of production. Increase in the price of petrol by OPEC compels the
government to increase the price of petrol and diesel. These two important raw
materials are needed by every sector, especially the transport sector. As a result, trans-
port costs go up resulting in higher general price level. Natural disaster, gradual
exhaustion of natural resources, work stoppages, electric power cuts, etc., may cause
aggregate output to decline.
Inefficiency, corruption, mismanagement of the economy may also be the other
reasons. Thus, inflation is caused by the interplay of various factors. A particular
factor cannot be held responsible for any inflationary price rise.5

5
http://www.economicsdiscussion.net/inflation/inflation-types-causes-and-effects-with-diagram/6401
 P a g e | 12

Types of inflation:

As the nature of inflation is not uniform in an economy for all the time, it is wise to distin-
guish between different types of inflation.

 On the basis of cause.

 Based on speed or intensity.

On the basis of causes:

a) Deficit-induced inflation:
The budget of the government reflects a deficit when expenditure exceeds revenue.
To meet this gap, the government may ask the central bank to print additional money.
Since pumping of additional money is required to meet the budget deficit, any price
rise may be called the deficit-induced inflation.
b) Currency inflation:
This type of currency inflation is caused by the printing of currency notes.
c) Credit inflation:
 P a g e | 13

Being profit-making institutions, commercial banks sanction more loans and advances
to the public than what the economy needs. Such credit expansion leads to a rise in
price level.
d) Demand-pull inflation:
An increase in aggregate demand over the available output leads to a rise in the price
level. Such inflation is called demand-pull inflation. Classical economists attribute
this rise in aggregate demand to money supply. If the supply of money in an economy
exceeds the available goods and services, Demand-pull inflation appears. It has been
described by Coulborn as a situation of too much money chasing too few goods.
Keynesians hold a different argument. They argue that there can be an autonomous
increase in aggregate demand or spending, such as a rise in consumption demand or
investment or government spending or a tax cut or a net increase in exports (i.e., C + I
+ G + X – M) with no increase in money supply. This would prompt upward adjust-
ment in price. Thus, Demand-pull inflation is caused by monetary factors explained
by classical adjustment and non-monetary factors explained by Keynesian argument.
e) Cost-push inflation:
Inflation in an economy may arise from the overall increase in the cost of production.
This type of inflation is known as cost-push inflation. Cost of production may rise due
to an increase in the prices of raw materials, wages, etc. Often trade unions are
blamed for wage rise since wage rate is not completely market-determined. Higher
wage means high cost of production. Prices of commodities are thereby increased. A
wage-price spiral comes into operation. But, at the same time, firms are to be blamed
also for the price rise since they simply raise prices to expand their profit margins.
Thus, we have two important variants of Cost-push inflation wage-push inflation and
profit-push inflation.

Based on speed or intensity:

a. Creeping or Mild Inflation:

If the speed of upward thrust in prices is slow but small then we have creeping
inflation. What speed of annual price rise is a creeping one has not been stated by the
economists. To some, a creeping or mild inflation is one when annual price rise varies
between 2 p.c. and 3 p.c. If a rate of price rise is kept at this level, it is considered to
 P a g e | 14

be helpful for economic development. Others argue that if annual price rise goes
slightly beyond 3 p.c. mark, still then it is considered to be of no danger.
b. Walking Inflation:
If the rate of annual price increase lies between 3 p.c. and 4 p.c., then we have a
situation of walking inflation. When mild inflation is allowed to fan out, walking
inflation appears. These two types of inflation may be described as ‘moderate
inflation’. Often, one-digit inflation rate is called ‘moderate inflation’ which is not
only predictable, but also keep people’s faith on the monetary system of the country.
Peoples’ confidence get lost once moderately maintained rate of inflation goes out of
control and the economy is then caught with the galloping inflation.
c. Galloping and Hyperinflation:
Walking inflation may be converted into running inflation. Running inflation is
dangerous. If it is not controlled, it may ultimately be converted to galloping or
hyperinflation. It is an extreme form of inflation when an economy gets shattered.
”Inflation in the double or triple digit range of 20, 100 or 200 p.c. a year is labelled
“galloping inflation”.
d. Government’s Reaction to Inflation:
Inflationary situation may be open or suppressed. Because of anti-inflationary policies
pursued by the government, inflation may not be an embarrassing one. For instance,
increase in income leads to an increase in consumption spending which pulls the price
level up. If the consumption spending is countered by the government via price
control and rationing device, the inflationary situation may be called a suppressed
one. Once the government curbs are lifted, the suppressed inflation becomes open
inflation. Open inflation may then result in hyperinflation.6

Effects of inflation:

One can study the effects of unanticipated inflation under two broad headings:

(a) Effect on distribution of income and wealth; and

(b) Effect on economic growth.

6
http://www.economicsdiscussion.net/inflation/inflation-types-causes-and-effects-with-diagram/6401
 P a g e | 15

Effect on distribution of income and wealth:

During inflation, usually people experience rise in incomes. But some people gain during
inflation at the expense of others. Some individuals gain because their money incomes rise
more rapidly than the prices and some lose because prices rise more rapidly than their
incomes during inflation. Thus, it redistributes income and wealth.

Though no conclusive evidence can be cited, it can be asserted that following categories of
people are affected by inflation differently:

i. Creditors and debtors.

ii. Bond and debenture-holders.

iii. Investors.

iv. Salaried people and wage-earners.

v. Profit-earners, speculators and black marketers.

Effect on economic growth:

Inflation may or may not result in higher output. Below the full employment stage, inflation
has a favorable effect on production. In general, profit is a rising function of the price level.
An inflationary situation gives an incentive to businessmen to raise prices of their products so
as to earn higher volume of profit. Rising price and rising profit encourage firms to make
larger investments. As a result, the multiplier effect of investment will come into operation
resulting in a higher national output. However, such a favorable effect of inflation will be
temporary if wages and production costs rise very rapidly. Inflationary situation may be as-
sociated with the fall in output, particularly if inflation is of the cost-push variety. Inflation
may also lower down further production levels. It is commonly assumed that if inflationary
tendencies nurtured by experienced inflation persist in future, people will now save less and
consume more.7

7
http://www.economicsdiscussion.net/inflation/inflation-types-causes-and-effects-with-diagram/6401
 P a g e | 16

DEFLATION:

Meaning:

In general deflation means the act of deflecting or the state of being deflected; the amount of
deviation caused by a deflection; a deviation of the indicator of a measuring instrument from
its zero position.8

Deflation in economics:

Deflation occurs when the general prices of goods and services of an economy falls for a
significant period of time. In other words, your money becomes worth more and you can buy
more goods and service with it than before. The opposite of deflation is inflation, where the
general prices of goods and service in an economy increase and your money is worth less
than before.9 When the overall price level decreases so that inflation rate becomes negative, it
is called deflation. It is the opposite of the often-encountered inflation.

A reduction in money supply or credit availability is the reason for deflation in most cases.
Reduced investment spending by government or individuals may also lead to this situation.
Deflation leads to a problem of increased unemployment due to slack in demand. Central
banks aim to keep the overall price level stable by avoiding situations of severe
deflation/inflation. They may infuse a higher money supply into the economy to counter-
balance the deflationary impact. In most cases, a depression occurs when the supply of goods
is more than that of money. Deflation is different from disinflation as the latter implies
decrease in the level of inflation whereas on the other hand deflation implies negative
inflation.10

Analysis of deflation:

People accept inflation as a fact of life. But nowadays the opposite phenomenon, called
deflation, is happening. Deflation is a decrease in the general price level of goods and
services. One may consider deflation as a good thing, considering the fact that you have to
pay less, but in fact it is not. Rather deflation shows that the economy is deteriorating.

8
http://www.thefreedictionary.com/deflection
9
http://study.com/academy/lesson/what-is-deflation-definition-causes-effects.html
10
http://economictimes.indiatimes.com/definition/deflation
 P a g e | 17

Deflation is generally associated with significant unemployment, which is only corrected

after wages drop considerably. Furthermore, businesses’ profits also drop significantly during
periods of deflation, making it difficult to raise additional capital to expand and develop new
technologies. “Deflation” is usually confused with “disinflation.” While deflation represents a
decrease in the prices of goods and services throughout the economy, disinflation represents a
situation where inflation increases at a slower rate. Deflation is a rare phenomenon that does
not occur in the course of a normal economic cycle, and hence, investors must recognize it as
a sign that something is severely wrong with the state of the economy. Nowadays deflation is
the greatest concern in the world economy. While in developing countries like Nigeria, South
Africa and India where Central Banks are taking measures to control Inflation, Central Banks
in developed countries are pushing for persistent inflation. From an era of controlling
inflation to present where central banks in developed economies are struggling to generate
even an inflation rate of 2 %, it has become tough for them to control the economy from the
risks of deflation and further recession.11

Causes of deflation:

Deflation can be caused by a number of factors, all of which stem from a shift in the supply-
demand curve. Remember, the prices of all goods and services are heavily affected by a
change in the supply and demand, which means that if demand drops in relation to supply,
prices will have to drop accordingly. Also, a change in the supply and demand of a nation’s
currency plays an instrumental role in setting the prices of the country’s goods and services.

11
https://theindianeconomist.com/critical-analysis-of-deflation/
 P a g e | 18

12

1. Change in Structure of Capital Markets:

When many different companies are selling the same goods or services, they will
typically lower their prices as a means to compete. Often, the capital structure of the
economy will change and companies will have easier access to debt and equity
markets, which they can use to fund new businesses or improve productivity. There
are multiple reasons why companies will have an easier time raising capital, such as
declining interest rates, changing banking policies, or a change in investors’ aversion
to risk. However, after they have utilized this new capital to increase productivity,
they are going to have to reduce their prices to reflect the increased supply of
products, which can result in deflation.
2. Increased Productivity:
Innovative solutions and new processes help increase efficiency, which ultimately
leads to lower prices. Although some innovations only affect the productivity of
certain industries, others may have a profound effect on the entire economy. For
example, after the Soviet Union collapsed in 1991, many of the countries that formed

12
http://indianexpress.com/article/opinion/columns/is-india-staring-at-deflation/
 P a g e | 19

as a result struggled to get back on track. In order to make a living, many citizens
were willing to work for very low prices, and as companies in the United States
outsourced work to these countries, they were able to significantly reduce their
operating expenses and bolster productivity. Inevitably, this increased the supply of
goods and decreased their cost, which led to a period of deflation near the end of the
20th century.
3. Decrease in Currency Supply:
As the currency supply decreases, prices will decrease so that people can afford
goods. How can currency supplies decrease? One common reason is through central
banking systems. For instance, when the Federal Reserve was first created, it
considerably contracted the money supply of the United States. In the process, this led
to a severe case of deflation in 1913. Also, in many economies, spending is often
completed on credit. Clearly, when creditors pull the plug on lending money,
customers will spend less, forcing sellers to lower their prices to regain sales.

13

Effects of deflation:

13
http://www.tradingeconomics.com/india/gdp-deflator
 P a g e | 20

Deflation can be compared to a terrible winter: The damage can be intense and be
experienced for many seasons afterwards. Unfortunately, some nations never fully recover
from the damage caused by deflation. Hong Kong, for example, never recovered from the
deflationary effects that gripped the Asian economy in 2002. Deflation may have any of the
following impacts on an economy:

 Reduced Business Revenues:

Businesses must significantly reduce the prices of their products in order to stay
competitive. Obviously, as they reduce their prices, their revenues start to drop.
Business revenues frequently fall and recover, but deflationary cycles tend to repeat
themselves multiple times. Unfortunately, this means businesses will need to
increasingly cut their prices as the period of deflation continues. Although these
businesses operate with improved production efficiency, their profit margins will
eventually drop, as savings from material costs are offset by reduced revenues.
 Wage Cutbacks and Layoffs:
When revenues start to drop, companies need to find ways to reduce their expenses to
meet their bottom line. They can make these cuts by reducing wages and cutting
positions. Understandably, this exacerbates the cycle of inflation, as more would-be
consumers have less to spend.
 Changes in Customer Spending:
The relationship between deflation and consumer spending is complex and often
difficult to predict. When the economy undergoes a period of deflation, customers
often take advantage of the substantially lower prices. Initially, consumer spending
may increase greatly; however, once businesses start looking for ways to bolster their
bottom line, consumers who have lost their jobs or taken pay cuts must start reducing
their spending as well. Of course, when they reduce their spending, the cycle of
deflation worsens.
 Reduced Stake in Investments:
When the economy goes through a series of deflation, investors tend to view cash as
one of their best possible investments. Investors will watch their money grow simply
by holding onto it. Additionally, the interest rates investors earn often decrease
significantly as central banks attempt to fight deflation by reducing interest rates,
which in turn reduces the amount of money they have available for spending. In the
 P a g e | 21

meantime, many other investments may yield a negative return or are highly volatile,
since investors are scared and companies aren’t posting profits. As investors pull out
of stocks, the stock market inevitably drops.
 Reduced Credit:
When deflation rears its head, financial lenders quickly start to pull the plugs on many
of their lending operations for a variety of reasons. First of all, as assets such as
houses decline in value, customers cannot back their debt with the same collateral. In
the event a borrower is unable to make their debt obligations, the lenders will be
unable to recover their full investment through foreclosures or property seizures.
Also, lenders realize the financial position of borrowers is more likely to change as
employers start cutting their workforce. Central banks will try to reduce interest rates
to encourage customers to borrow and spend more, but many of them will still not be
eligible for loans.14

14
http://www.moneycrashers.com/deflation-definition-causes-effects/
 P a g e | 22

Conclusion:

Inflation is a sustained increase in the general level of prices for goods and services. When
inflation goes up, there is a decline in the value, or purchasing power of money. When there
is unanticipated inflation, creditors lose, people on a fixed-income lose, menu costs go up,
uncertainty reduces spending and exporters aren't as competitive. Lack of inflation (or
deflation) is not necessarily a good thing and can lead to destabilizing deflationary spirals.
Inflation is measured with a price index. In the long term, stocks and precious metals are
good protection against inflation. Inflation is a serious problem for fixed income investors.
It's important to understand the difference between nominal interest rates and real interest
rates. Deflation is a major concern not only for economists, but for all of us. Deflation is the
exact opposite of inflation. Deflation is when prices fall over time. This happens because
either demand falls a lot or companies produce much more goods and services than required.
Either way, sales continues to fall, forcing companies to give discounts or price cuts to attract
consumers. This leads to a fall in prices over time. Just like inflation, deflation can be a
continuous cycle. There are some measures adopted by the government of a country to
control inflation like monetary measures, fiscal measures, controlling the investment, etc.
There are several steps taken by the Central Bank to eradicate deflation from the economy.
So, we can say that a lower rate of inflation is good, but a situation like deflation is hard to
tackle because it may lead the country to depression and therefore deflation is dreadful.
 P a g e | 23

BIBLIOGRAPHY

An Analysis of Inflation in India, 1950-75 - V. PANDIT Indian Economic Review

New Series, Vol. 13, No. 2 (OCTOBER 1978),

Modelling Inflation after the Crisis - James H. Stock, Mark W. Watson: NBER Working;
Paper No. 16488-Issued in October 2010

The Determinants of Inflation in India: The Bounds Test Analysis. International Journal of
Economics and Financial Issues 2016.

INFLATION AND ITS IMPACT ON INDIAN ECONOMY -DR.S.JAMUNA

Mankiw, N. Gregory (2002). Macroeconomics (5th Ed.). Worth