MB0042 Fall 2014 Assignment
MB0042
MANAGERIAL ECONOMICS
Q. Inflation is a global Phenomenon which is associated with high price causes decline in the value for money. It exists when the amount of money in the country is in excess of the physical volume of goods and services. Explain the reasons for this monetary phenomenon
1. Define Inflation
2. Causes for Inflation
ANS: (1) Inflation is a situation of substantial and rapid increase in the level of prices and consequent deterioration in the value of money over a period of time. It refers to the average rise in the general level of prices and fall in the value of money .
(2) Causes for Inflation:
Increase in aggregative effective demand is responsible for inflation. Aggregate demand exceeds aggregate supply of goods and services. Demand rises much faster than supply. We can enumerate the following reasons for increase in effective demand. And causes of Inflation.
Increase in money supply: Supply of money in circulation increases
On account of the following reasons:
Deficit financing by the government - Expansion in public expenditure, expansion in bank credit and repayment of past debt by the Government to the people, increase in legal tender money and public borrowing.
Increase in disposable income–Aggregate effective demand rises when disposable income of the people increases. Disposable income rises on account of the following reasons: reduction in the rates of taxes, increase in national income while tax level remains constant
,and decline in the level of savings.
Increase in private consumption expenditure and investment expenditure–An increase in private expenditure both on consumption and on investment leads to emergence of excess demand in an economy. When business is prosperous, business expectations are Optimistic and prices are rising. More investments are made by private entrepreneurs causing an increase in factor prices. When the income of The factors rise; there is more expenditure on consumer goods.
Increase in
MANAGERIAL ECONOMICS
Q. Inflation is a global Phenomenon which is associated with high price causes decline in the value for money. It exists when the amount of money in the country is in excess of the physical volume of goods and services. Explain the reasons for this monetary phenomenon
1. Define Inflation
2. Causes for Inflation
ANS: (1) Inflation is a situation of substantial and rapid increase in the level of prices and consequent deterioration in the value of money over a period of time. It refers to the average rise in the general level of prices and fall in the value of money .
(2) Causes for Inflation:
Increase in aggregative effective demand is responsible for inflation. Aggregate demand exceeds aggregate supply of goods and services. Demand rises much faster than supply. We can enumerate the following reasons for increase in effective demand. And causes of Inflation.
Increase in money supply: Supply of money in circulation increases
On account of the following reasons:
Deficit financing by the government - Expansion in public expenditure, expansion in bank credit and repayment of past debt by the Government to the people, increase in legal tender money and public borrowing.
Increase in disposable income–Aggregate effective demand rises when disposable income of the people increases. Disposable income rises on account of the following reasons: reduction in the rates of taxes, increase in national income while tax level remains constant
,and decline in the level of savings.
Increase in private consumption expenditure and investment expenditure–An increase in private expenditure both on consumption and on investment leads to emergence of excess demand in an economy. When business is prosperous, business expectations are Optimistic and prices are rising. More investments are made by private entrepreneurs causing an increase in factor prices. When the income of The factors rise; there is more expenditure on consumer goods.
Increase in