INFLATION - CRUCIAL CAUSES & BEST REMEDY
Definition:
Inflation is defined in a multiple way by the different people and economist.For instance ''the expansion of money supply in an amount justified by the state of the trade and consequences into general rise in price ''.This was defined by the Silverman. In the same way Coul born has said that ''Too much money chasing too few goods ''is an other definition.Inflation is one of the major problem of the world.It is an economic term.It means any increase in the supply of money.Inflation occurs when the central bank expands the money supply in circulation.If there is no increase in the out put of goods and services ,expansion of the money supply raises the general level of prices.In other words inflation describe a fall in the purchasing power of money.So in ordinary speech, inflation is often taken to mean high prices.
Causes of Inflation:
There may be many causes of inflation as appended below:
(1) Wrong and faulty economic policy of the government is one of the important causes.In ordered to meet the deficit in budget ,the government issue more currency. As a result The supply of money in circulation increases.But the supply or services and the goods remain same on the previous level.This results in price hike.
(2) The unnecessary induction of foreign aid also enhances the rate of inflation.
(3) Careless attitude of government on import and export items and import of unnecessary things which are not required and spending of foreign exchange on unnecessary luxury goods also major cause of inflation.
(4) Over population is in actual a population explosion and rapid increase in population is yet an other cause.With the rapid increase in population needs and required for services and goods including food,clothing,housing,water supply,electricity and,sanitation increases.If the supply remains the same certainly the prices spiral up.
(5) Reduction in production also gives birth to inflation.When agriculture or industrial production come to acute shortage,a shortage of goods and services is created.This again result in high prices or we can say inflation.
(6) political stability is very important for strong economy of any country because political instability decreases investment and increases the speculation which results that the industrialist and businessman feel uneasy and insecure.Even government becomes unable and helpless to control increasing prices.
(7) Nationalization of industries plays a significant role in the hike of inflation.People refrain from investment in industries due to nationalization,consequently they give low production,high prices, and quality of goods become sub standard
(8) An other reason behind the inflation is increase in wages which result in more cost of production and consequently prices go higher and higher.
(9) Weather condition play an important role in the rise of inflation.In an agricultural country it is possible that unfortunately crops may fall shortage of expected target,thus pushing up prices.
(10) The role of high prices cannot be ignored in this regard.In 1973 inflation was generated through out the world merely due to oil prices.Import of oil in developing and poor countries is a huge burden on foreign exchange resources.
(11) In some countries artificial scarcity is generated for time being to earn huge profit which result in the form of inflation.Same case is with smuggling which also result in the inflation.
Inflation,inflationary trend and rising prices can be controlled and checked by taking certain following measures:
(1) The government must formulate responsible and realistic policies and these policies should be implemented true spirit and fervor along with full devotion and dedication.Unnecessary expenditure on non productive sector should be eradicated.It should be very meticulous.and careful in the issuing of currency.
(2) Best effort should be made to enhance the production of goods and services.Its result would be in the form of low prices and inflation will be in controlled condition.
(3) Proper check and balance and ban should be imposed on the import of luxury goods like costly car and cosmetic items
(4) .family planing program should be popularized on radio TV,internet and all type of media including print media to control the increasing population.
(5) The system of taxation can be help full in this regard and government should increase the rate of both direct and indirect taxes so that the individual consumer may have less money to spend.
Inflation or rising prices effect the different people differently.On the level of production if prices are rising ,business activity will be stimulated .Profit will be greater than anticipated.If it is desire to maintain a high level of production ,gently rising prices are to be preferred to falling prices.On the income distribution level,the income of different groups of people are not equally affected.Some people derive their income from profits.When prices rise,profits are higher than before.The profit receiver get a risk in their income.Some people are wages earner.In times of rising prices their real wages fall.Fixed income group consist of government employers and retired people.In a period of rising prices,all people on fixed income find that their real incomes decline.
(2) The unnecessary induction of foreign aid also enhances the rate of inflation.
(3) Careless attitude of government on import and export items and import of unnecessary things which are not required and spending of foreign exchange on unnecessary luxury goods also major cause of inflation.
(4) Over population is in actual a population explosion and rapid increase in population is yet an other cause.With the rapid increase in population needs and required for services and goods including food,clothing,housing,water supply,electricity and,sanitation increases.If the supply remains the same certainly the prices spiral up.
(5) Reduction in production also gives birth to inflation.When agriculture or industrial production come to acute shortage,a shortage of goods and services is created.This again result in high prices or we can say inflation.
(6) political stability is very important for strong economy of any country because political instability decreases investment and increases the speculation which results that the industrialist and businessman feel uneasy and insecure.Even government becomes unable and helpless to control increasing prices.
(7) Nationalization of industries plays a significant role in the hike of inflation.People refrain from investment in industries due to nationalization,consequently they give low production,high prices, and quality of goods become sub standard
(8) An other reason behind the inflation is increase in wages which result in more cost of production and consequently prices go higher and higher.
(9) Weather condition play an important role in the rise of inflation.In an agricultural country it is possible that unfortunately crops may fall shortage of expected target,thus pushing up prices.
(10) The role of high prices cannot be ignored in this regard.In 1973 inflation was generated through out the world merely due to oil prices.Import of oil in developing and poor countries is a huge burden on foreign exchange resources.
(11) In some countries artificial scarcity is generated for time being to earn huge profit which result in the form of inflation.Same case is with smuggling which also result in the inflation.
Remedial Action:
(1) The government must formulate responsible and realistic policies and these policies should be implemented true spirit and fervor along with full devotion and dedication.Unnecessary expenditure on non productive sector should be eradicated.It should be very meticulous.and careful in the issuing of currency.
(2) Best effort should be made to enhance the production of goods and services.Its result would be in the form of low prices and inflation will be in controlled condition.
(3) Proper check and balance and ban should be imposed on the import of luxury goods like costly car and cosmetic items
(4) .family planing program should be popularized on radio TV,internet and all type of media including print media to control the increasing population.
(5) The system of taxation can be help full in this regard and government should increase the rate of both direct and indirect taxes so that the individual consumer may have less money to spend.
Inflation or rising prices effect the different people differently.On the level of production if prices are rising ,business activity will be stimulated .Profit will be greater than anticipated.If it is desire to maintain a high level of production ,gently rising prices are to be preferred to falling prices.On the income distribution level,the income of different groups of people are not equally affected.Some people derive their income from profits.When prices rise,profits are higher than before.The profit receiver get a risk in their income.Some people are wages earner.In times of rising prices their real wages fall.Fixed income group consist of government employers and retired people.In a period of rising prices,all people on fixed income find that their real incomes decline.
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