Growth vs Inflation

Only available on StudyMode
  • Download(s) : 10
  • Published : December 3, 2012
Open Document
Text Preview
Economic Growth- Please write the definition
Inflation- Rising prices across the board. Inflation means less bang for your buc, as it erodes the purchasing power of a unit of currency. Inflation usually refers to CONSUMER PRICES.
Therefore the goal of MONETARY POLICY in many countries is to ensure that inflation is neither too high or too low. The present growth rate of our country has dropped to nearly three and a half year low of 5.5%. India’s GDP growth for the 1st quarter of the current FY 2012-13 stood at 5.5% compared to 5.3% in the last quarter of the previous financial year. Also it is much lower compared to 8% GDP growth in the same quarter last financial year. Though the inflation has fallen to eight month low of 7.45% in October 2012 from 7.81% the previous month, but it is certainly at a very high rate. The reason for the fall in inflation is because of the slowing demand side pressures. The RBI is more concerned about controlling the inflation, whereas the government wants it to ease the interest rates to infuse money supply in the market so as to boost the growth. 1) The infusion of money supply in the market will not only improve the growth rate but also increase the investor’s confidence - This will normally spur additional spending by consumers and build confidence in the economy because it is easier to obtain money. 2) Also, the increase in money supply can be invested in the manufacturing and SME sector as it has been at a negative growth(dipped to 0.4% during this month from 2.5% in the same period last year) and that has rattled the industry. The SME sector contributes 45% of industrial output and 40% of exports. 3) In 2011, RBI went for 2 subsequent hikes of interest rate with a hike of 25 bps on repo & reverse repo rate on 2ndof July & another 25 bps on 27thof July to contain the inflation. But being a little pragmatic, higher interest rates can lead to unemployment, so a person would prefer a low paying job with 12% of...
tracking img