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Economic News Analysis: Inflation, Fiscal Consolidation, and Managerial Decisions

This article analyzes the impact of inflation on government priorities, fiscal consolidation, and managerial decision making in the economic market.

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Economic News Analysis: Inflation, Fiscal Consolidation, and Managerial Decisions

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  1. ANALYSIS OF ECONOMIC NEWS Dr. UpmaPaliwal

  2. MANEGERIAL ECONOMICS • Managerial economics is “Application of the economic concepts after economic analysis of the problems and reaching to rational managerial decisions".

  3. TIMES OF INDIA 20/05/2014NEW DELHI: The Prime Minister's Office has identified inflation at the top. After all, inflation remains one of the biggest challenges facing the government and was one of the main planks on which Modi fought the Lok Sabha electionsFM Arun Jaitley's message: Fiscal consolidation, curbing inflation & expediting decisions top prioritiesECONOMICTIMES.COM May 27, 2014, 10.10AM IST.

  4. INFLATION Inflation rate is the rate at which prices of goods and services increase in its economy. It is an indication of the rise in the general level of prices over time.

  5. Since it's practically impossible to find out the average change in prices of all the goods and services traded in an economy due to the sheer number of goods and services present, a sample set or a basket of goods and services is used to get an indicative figure of the change in prices, which we call the inflation rate.

  6. Mathematically, inflation or inflation rate is calculated as the percentage rate of change of a certain price index. WPI is used to measure the change in the average price level of goods. In India, a total of 435 commodities data on price level is tracked through WPI, which is an indicator of movement in prices of commodities in all trade and transactions. It is on a weekly basis with the shortest possible time lag of only two weeks.

  7. CRR: Cash Reserve Ratio (CRR) is the ratio of deposits banks must maintain with the Reserve Bank of India. This implies that if a person deposits Rs 1,000 in his account, the bank can use it to lend others, but it has to deposit a percentage of that amount with the RBI. Hence, if CRR is 5%, the lender will deposit Rs.50 with the RBI and has Rs.950 left at its disposal.

  8. Repo Rate: The repo is the interest charged by the RBI to banks when they approach it for short term loans. • Repo rate and inflation:  When the repo rate is raised, banks are compelled to pay higher interest to the RBI which in turn prompts them to raise the interest rates on loans they offer to customers.

  9. The customers then are dissuaded in taking credit from banks, leading to a shortage of money in the economy and less liquidity. So, while on the one hand, inflation is under controlled as there is less money to spend, growth suffers as companies avoid taking loans at high rates, leading to a shortfall in production and expansion. 

  10. Reverse repo rate is the rate at which RBI borrows money from banks. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. • Effect of this will be on financial market. Due to decrease in the supply of credit in the market, inflation rate will decrease.

  11. Thanks

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