Case Study 5
Inflation and the Indian Economy
Inflation is the rise in prices which occurs when the demand for goods and services exceeds their available supply. In simpler terms, inflation is a situation where too much money chases too few goods. In India, the Wholesale Price Index (WPI), which was the main measure of the inflation rate consisted of three main components primary articles, which included food articles, constituting 22% of the index; fuel, constituting 14% of the index; and manufactured goods, which accounted for the remaining 64% of the index.
For purposes of analysis and to measure more accurately the price levels for different sections of society and as well for different regions, the RBI also kept track of consumer price indices. The average annual GDP growth in the 2000s was about 6% and during the second quarter (July- September) of fiscal , the growth rate was as high as 9.2%. All this growth was bound to lead to higher demand for goods. However, the growth in the supply of goods, especially food articles such as wheat and pulses, did not keep pace with the growth in demand. As a result, the prices of food articles increased
Q.1. What is inflation?
(A) Rise in the general level of the prices
(B) Fall in the price level
(C) Both a and b
Q.2. What were the steps taken by RBI to correct the problem of inflation in this case ?
(A) Increasing repo rates
(B) Increasing the Cash Reserve Ratio (CRR)
(C) Both a and b
(D) Buying the government securities
Q.3. Which indices are used to measure inflation?
(A) WPI
(B) CPI
(C) Both a and b
Q.4. RBI adopts expansionary monetary policy to correct the problem of inflation. Is this statement true or false?
TRUE
FALSE
Q.5. By increasing the 'Bank Rate', the RBI can:
(A) provide incentives to commercial banks to lend less to public
(B) provide incentives to commercial banks to lend more to public
(C) None of the above
Q.6. The major responsibility of RBI is
(A) healthy regulation.
(B) industrial regulation.
(C) monetary regulation
(D) none of these
Case Study 6
Fiscal policy is the tools that governments use to influence the economy. The first tool of fiscal policy is laxation which presents the revenue side of the government's budget. The second tool of fiscal policy is government spending which presents the expenses side of government's budget.The debate between economists regarding whether fiscal policy stifles or pursue GDP hasn't been resolved so for. Fiscal policy can have short-run and lang run impact on the economy. In the short run, fiscal policy can move the output from its potential level Ihrough affecting the demand of goods and service. In the long run, fiscal policy can affect the output by affecting the quantity and quality of labor force or other input factors or through changes in the total factor productivity (Barro 1991). The role of fiscal policy took much attention in the economic theory. Classical economic theary suggests thal carefully designed fiscal policy can affect economic growth in the long run (Hemming et al.2002). There are two most common views regarding the impact of fiscal policy on economic growth in the long -run, the Keynesian view and Non- Keynesian view, The Keynesian view suggests that fiscal expansian will have a positive effect on economic growth in the short-term while fiscal consolidation will have a regative effect on economic growth. Contradictory, non-Keynesian view suggests that the impact of fiscal expansion is likely to be small while fiscal consolidation can have a positive impact on economic economic growth encourages many economists to give more attention to that topic rowadays. Everybody attempts to prove his point of view, however, the way seems to be very long to do sa. owth. The debate about the effectiveness of fiscal policy in pursuing...
Q.1. The tools of fiscal policy are?
(A) Government Expenditure
(B) Taxation
(C) CRR and SLR
(D) Both a and b
Q.2. Fiscal policy can have short- run and long run impact on the economy. This statement is true or false?
TRUE
FALSE
Q.3. In the long run what is the impact of fiscal policy on GDP or output?
(A) affecting the demand of goods and service
(B) affecting the quantity and quality of labor force or other input factors
(C) Both b and d
(D) affecting the total factor productivity
Q.4. The Keynesian view about the impact of fiscal policy is?
(A) fiscal expansion will have a positive effect on economic gli growth in the short-term
(B) fiscal consolidation will have a positive effect on economic growth
(C) Both a and b
(D) Only a
Q.5. As a tool of monetary policy in India.
(A) CRR is more often used than SLR practices
(B) open market operations are never used
(C) Margin Requirements are not used
(D) None of these
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