Here is a compilation of term papers on ‘Inflation’ for class 9, 10, 11 and 12. Find paragraphs, long and short term papers on ‘Inflation’ especially written for school and college students.
Term Paper on Inflation
Term Paper Contents:
- Term Paper on the Meaning of Inflation
- Term Paper on the Types of Inflation
- Term Paper on the Causes of Inflation
- Term Paper on the Effects of Inflation
- Term Paper on the Measures to Restrain Inflation
Term Paper # 1. Meaning of Inflation:
It is big fault of money that its value doesn’t remain constant. There are changes in its value from time to time. The cause of this change is the change in the prices of goods and services from time to time. There is an inversely proportional relationship between the value of money and price level and trade cycle is born due to changes in the price level. The situation of recession and boom comes in the economy due to cycle of trade. The circumstances appearing due to changes in the value of money are called inflation and deflation.
The literal meaning of the term inflation is ‘spread’ or ‘expansion’ but in reality it is called monetary inflation. Its cause is that it is always a monetary event. In the common language the situation when the price level of goods and services increases and the value of money decrease it is referred to as inflation. But there has been much controversy among economists regarding the definition of inflation. Different economists have defined it differently.
For the sake of convenience of study, these definitions can be classified as follows:
(A) Definitions Based on Quantity of Money:
(1) According to Crowther, “Inflation is a state in which the value of money is falling i.e. price is rising.”
Prof. Crowther’s this definition is certainly an easy definition but it can’t be held satisfactory. According to this definition, every increase in the price level of goods and services should be considered inflation, while it is not so in reality. Every increase in the price level can’t be called inflation. For example, when the period of depression in the economy ends, there is gradual rise in the prices, it is seen in the interest of economy. In this situation, there is a rise in the price level of goods but it can’t be called inflation. So Crowther’s definition can’t be considered to be a complete definition.
(2) According to Prof. Kemmerer, “Inflation is too much currency in relation to the physical volume of business being done.”
According to this definition, when the demand of money increases with respect to the quantities of good and services, it is called inflation. This definition can be called satisfactory to some extent because it gets clear that inflation is born when the amount of money is more that trade requirements.
(3) According to Hawtrey, “The state in which there is over-issue of currency is called inflation.”
This definition is just a circumlocution of words. It doesn’t get clear in this definition what is meant by over issue of currency.
(4) According to Pigou, “Inflation is taking place when money income is expanding relatively to the output of work by production to income earning activities.”
Prof. Pigou’s definition is more satisfactory. He has clarified that the situation of inflation rises when people’s monetary income increases more as compared to the production of goods and services. People’s monetary income increases more as compared to the production of goods and services. People’s monetary income increases due to increase in the supply of money.
Consequently, there is an increase in the demands of goods and services which leads to an increase in the amount of production. Again, a time comes when a balance is established between monetary income and production. If the monetary income gets increasing beyond this point, there is no more increase in the production. This leads to rise in the prices of goods and services and it is the situation of inflation.
(5) According to Goldenwiser, “Inflation occurs when the volume of money actively bidding for goods and services increases faster than the available supply of goods.”
This definition resembles that of Prof. Kemmerer. So it is also not satisfactory.
After the study of all the above definitions we can say that Prof. Pigou’s definition is clear, proper and the best. Actually the inflation doesn’t refer to the situation of increased prices but the sequence of rising prices.
(B) Definitions Based on Demand and Surplus:
Prof. Keynes has associated inflation with the employment condition making demand surplus its basis. According to Prof. Keynes, “If there is expansion in the amount of money before reaching full employment, one part of it will expand employment and the other part will increase prices by increasing cost of production. Keynes has referred the situation before full employment as semi-inflation.”
If the amount of money increases beyond the point of full employment there will be no increase in employment because other sources of employment have already been used. So there will be increase only in the prices. According to Prof. Keynes, this will be the situation of full inflation. This can be clarified with the help of the back diagram.
In the back diagram X-axis represents amount of money and Y-axis shows employment and prices. P is the point of full employment. It is clear from the diagram that employment and prices keep rising before point P. So, this will be the condition of semi-inflation and after this situation of full inflation will start. Thus, inflation is a movable process which can be felt only in the long duration so every rise in the price level can’t be called inflation. Only the gradual and stead rise in the price level is considered the indicators of inflation.
Term Paper # 2. Types of Inflation:
There are many forms of inflation.
The following are the prominent ones:
(1) Commodity Inflation:
It refers to general type of inflation. According to Prof. Keynes, the prices of commodities rise in a general way in this kind of inflation.
(2) Currency Inflation:
When a surplus amount of paper money is issued by the central bank of the country to meet the requirements of the government and it leads to the rise in prices of goods and services, it is called currency inflation or Deficit-Induced Inflation.
(3) Credit Inflation:
Sometimes the government keeps the amount of money stable and encourages credit. The expansion of credit is done by the banks of the country. When the prices of commodities increase due to expansion of credit, it is called credit Inflation.
(4) Profit Inflation:
Sometimes the cost of production decreases for many reasons due to which there is a tendency of decline in prices. But the government takes artificial measures to stop this decline in prices. As a result, the production gets additional profit to be profit inflation. This does not cause any change in the prices of goods. Prof. Keynes has said this stage profit inflation. The prices of commodities do not change in this inflation.
(5) Wage-Induced Inflation:
When there is no rise in the production but the producer is compelled to raise wages under the pressure of trade unions, it leads to rise in cost of production. It is called Wage-Induced Inflation.
(6) Production Inflation:
When there is no increase in the supply of money, but there is a decline in production due to natural factors like flood, drought, monsoon failure etc. or artificial factors like strike, lockout etc. and there is a rise in the prices of goods, it is called production inflation.
(7) Deficit-Induced Inflation:
Sometimes, the governments in most democratic countries are incapable of raising funds to meet the increased expenses. In this situation, the government makes a deficit budget. If this deficit is not met even through new taxes, the government issues surplus notes. Consequently, there is a rise in prices which is called Deficit-Induced Inflation.
(8) Full and Partial Inflation:
According to Prof. Pigou, when there is an excess increase in the monetary income which crosses to the condition of full employment in the economy, there is rise in prices which is called full inflation. Similarly, before crossing full employment if the quantity of money expands then it is called partial inflation.
(9) Open and Suppressed Inflation:
When there is no check on the rising prices in the economy and it is given the freedom of rising independently, it is called Open Inflation. On the contrary, if the government is trying to control it, it is called suppressed or controlled inflation.
(10) Cost-Induced or Cost-Push Inflation:
The cost of production increases due to increase in the various sources of production. This leads to the rise of prices of commodities; such inflation is called Cost-Induced or Cost-Push Inflation.
(11) Inflation on the Basis of Speed:
On this basis, there are four forms of inflation:
(a) Creeping Inflation:
It is also called General Inflation. Such inflation is considered proper for the development of any economy. There is very simple increase in the quantity of money in Creeping Inflation. Generally, an annual increase up to 2 percent is called Creeping Inflation.
(b) Walking Inflation:
When the quantity of money in the economy crosses Creeping Inflation i.e.; the annual income in the money is more than 2 percent, it is called Walking Inflation. In this inflation, the increase in the prices can be up to 5 percent.
(c) Running Inflation:
If the Walking Inflation is not checked and it goes on increasing, it takes the form of Running Inflation. In this inflation, the prices of commodities can increase up to 10 percent. People with stable income face many hardships during this inflation.
(d) Galloping or Hyper Inflation:
There is an increase in prices beyond expectation. This increase in price is observed on the daily as well weekly level. Hyper Inflation has a quick adverse impact on the economy.
Germany and Australia faced such a situation after World War-I. That time there was frequent increase in prices on very quick intervals. The value of money currency had fallen so much that old currencies had to be substituted with new ones.
Clarification through Diagram:
The above diagram clears that OA is Creeping Inflation which has slow pace. If this situation is not controlled, the line of inflation will be converted into Walking Inflation represented by Line OB. OC is the line representing Running Inflation. Similarly OD represents Hyper Inflation. Creeping Inflation is supposed to be good in a developing economy, but it needs to be cared that it should not take the form of Walking or Running Inflation. Hyper Inflation cannot be good for any economy.
Term Paper # 3. Causes of Inflation:
The causes of inflation can be divided into two categories:
(A) Increase in Monetary Income, and
(B) Decline in Production.
(A) Increase in Monetary Income:
It is true that when the monetary income of people increases, there is an increase in the demand which leads to increase in prices.
Following are the main causes of increase in monetary income:
(i) Monetary Policy of the Government:
The monetary Policy of the Government determines the amount of paper money issued by Central Bank of the Country. Sometimes, the government commands the central bank to issue surplus paper money in special circumstances. In this initial phase, such a decision seems to be proper for balancing the economy, but if it is not checked, it can increase extraordinarily and take the form of inflation. Similarly, the adverse conditions of bank rate, credit policies, open market operations etc. are the causes of inflation.
(ii) Reduction in Public Debt:
When, the government reduced the amount of public loan taken from people of the country, or start repaying the loans taken from the people, the monetary strength of people increases. Consequently demands for goods and services increase. If the amount of production is not increased, there is an increase in the prices of goods and services.
(iii) Deficit Financing:
When the government is not able to meet its deficit budget through new taxes, it does so by issuing surplus notes. As a result, the amount of money increases in the economy which gives rise to the situation of inflation.
(iv) Credit Policy of Commercial Banks:
Credit Policy of Commercial Banks also gives rise to inflation. If these banks start providing cash to people at low rates, the monetary strength of people increases. Consequently, the purchasing power of people increases. If the quantity of production stays stable, there is an increase in prices.
(v) Increases in Demand for Expert Goods:
If there is an increase in demand for export of such goods which have a stable supply, there is less availability of these for the domestic consumers. It affects prices. Due to decline in supply of goods in the domestic market, there is an increase in prices.
(vi) Black Money:
Black Money refers to that income of any person on which tax has not been paid. Black money creates unnecessary demand for goods and prices increase.
(vii) Increase in Consumer Spending:
When consumer starts demanding more and more goods or they demand more amount of luxury goods, there is an increase in prices. Their demand increases further, if these are available on installments. As a result there is an increase in prices.
(viii) Increase in Disposable Income:
Demands for goods and services increase due to increase in Disposable Income. This leads to rise in prices.
(B) Reduction in Production:
It is also an important cause of inflation.
There can be decrease in production due to the following reasons:
(i) Natural Causes:
Excessive rains, drought, flood, earthquake etc. can lead to decline in production in the countries with agro based economies. If there is no increase in the amount of money and at the same time there is decline in production then it can encourage inflation.
(ii) Lack of Raw Materials:
With the increase in the demands of produced goods, there is also an increase in the demand of raw materials. If there is car city of raw materials in the country and it has to be imported from other countries at high price it is sure to affect production. In other words, with the reduction in raw materials, there will also be reduction in production and there will raise the situation of inflation.
(iii) Taxation Policy of the Government:
The prices of goods increase if a heavy excise duty is imposed on the production. This creates an environment for inflation.
(iv) Production Process:
There are changes in the techniques of production of goods from time to time. If the producer applies the old techniques of production, there will be less production and the cost of production will be high. The consumer will have to pay high price for goods. Thus, the old method of production creates the situation of inflation.
(v) Industrial Disputes:
There are clashes with workers and industrialists for the demand of salaries, allowances, perquisites etc. This creates the situations like strikes, lockouts etc. Trade Unions become dominant over the management. All these cause decline in production. But due to the pre-existing situations of demands, the prices go up and inflation is increased.
(vi) Increase in Demand:
When there is increase in demand of goods as compared to the production, there rises a situation of inflation. This increase in demand rises due to population growth, increase in export, period of war etc.
(vii) Black Marketing:
Sometimes, people create an artificial scarcity of necessary goods in the market by stocking them. They start selling goods in black markets at high prices for earning more profits. This situation gives rise to inflation.
Term Paper # 4. Effects of Inflation:
Inflation has different effects on different classes of people. Some people are profited from it while some other are harmed. It is true that the prices of goods and services increase during the inflation. But it does not increase uniformly. People from different social classes demand different materials of necessities. So, inflation does not have equal effect on all classes. Besides some people have stable income. So, inflation does not affect all classes equally.
The effect of inflation on different classes can be classified in the following points:
(A) Economic Effects:
(1) Producer’s Class:
Prices of goods increase during the inflation but production cost does not increase. Their reasons in that raw material are previously purchased and production can’t be increased very much in the short period. There is an increase in the price of finished goods maintained in the stock. This gives the producers extra profit. Thus, inflation is beneficial for producers’ class. They also start expanding their activities, being encouraged by surplus profit.
(2) Consumer’s Class:
Generally, consumers are from two groups—those with definite income and those with indefinite income. Those with definite income have to face more hardship as they face difficulties with their budget due to increase in the prices of goods of their consumption. Consequently, they have to reduce their consumption. Similarly, people with uncertain income also face problems due to inflation. However their income increases during the inflation, but it does not increase in the ratio of increase in prices.
(3) Wage Earners:
Sometimes wage earners get benefit and sometimes face loss due to inflation. They get more opportunities of employment due to expansion of trade and industries during the inflation and they don’t face unemployment. At the same time if trade unions are strong, they can get wages adjusted according to inflation.
With this view point, inflation is beneficial for labourers. On the other hand, it is also true that they have to face difficulties when wages are not increasing in the ratio of rise in the prices. The producers also exploit them if the trade unions are weak.
(4) Debtors and Creditors:
The debtors are benefited while the creditors are harmed during the inflation. The reason is that the purchasing power of money decreases during the inflation. However, the creditors get their money back but its purchasing power falls as compared to its purchasing power when the amount was lent. Thus, the creditors face a loss. If the creditors face a loss, the debtors are certainly benefited.
(5) Import and Export:
There is much increase in the prices of commodities during the inflation. It is not necessary that the situation of inflation exists in all the country at the same time. Thus, in a particular country the export reduces and import increases due to increase in prices of commodities. This weakness the balance of international trade and affects the economy badly.
Those investors who invest in the sector with stable income such as debentures, bonds etc. they face a loss even after getting a certain income because the purchasing power of their income reduces during inflation. But those investors who have invested in the equity share capital of companies get more profit because there is an increase in the profit of companies and so shareholders get a higher dividend.
The expenditure of the government increases during the inflation because the employees have to be paid a raised salary. Besides, there is also an increase in the expenses on infrastructure and development. Thus, the government faces a loss due to inflation, for the fulfillment of which the government increases the load of taxes to people.
Inflation is profitable for assesse. The reason is that the purchasing power of the amount paid by them is less.
(B) Social, Political and Other Effects:
(1) Increase in Economic Disparity:
The rich class gets richer and the poor classes are compelled to pay the raised prices. The maximum part of profit and income during the inflation goes to rich class. This creates economic disparity in the society.
(2) Increase in Employment:
There is expansion of trade and industries during the inflation. New commercial enterprises are also established. Thus, new opportunities of employment are available and there is reduction in the unemployment.
(3) Moral Downfall:
The profit of the business class, increase due to inflation. Being influenced by the glory of profit, the people of business class indulge in creating artificial scarcity, adulteration, black marketing and other immoral activities.
(4) Encouragement to Bravery and Speculation:
Everybody wants to get more and more income during the inflation. As a result, bravery in offices increases. Similarly, the activity of speculation is also encouraged due to inflation.
(5) Banking Development:
The income of people increases very much during the inflation. As a result, there is an increase in bank deposits. Banks grant credit with the help of these deposits. Thus, inflation is profitable with the view of banking development.
(6) Political Effects:
People’s faith in government weakens during the inflation. The opposition parties try to pressurise the government inside and outside of the parliament. Sometimes the inflation may even cause change in government.
The producers and traders create an artificial scarcity of goods in the market by making stocks with the view of getting profit of increased prices. As result, there is more load of inflation on consumers.
After studying the above mentioned effects of inflation it feels that it is beneficial in certain circumstances. However, the first and second phases of inflation are certainly helpful in the development of economy but after this it disturbs the economy. People lose their faith in currency.
Considering the demerits of inflation, Prof. C. N. Vakil has said, “Inflation may be compared to a robber. Both deprive the victim of some possession with the difference that robber is visible, inflation is invisible, the robber’s victim may be one or a few at a time, the victim of inflation is the whole nation, the robber may be dragged to court of law but inflation is legal.”
If we analyse Prof. C. N. Vakil’s statements seriously, it seems plausible. In fact, inflation is an economic evil. Prof. Robertson’s statement is relevant here. According to him, money is boon for humans, but if it is not kept under control; it can be cause of trouble and perplexity.
Term Paper # 5. Measures to Restrain Inflation:
Due to evil effects of inflation there is a need of taking measures to check it. It is essential to check inflation to regulate the economy.
Generally following three steps are taken to control the inflation:
(1) Monetary Measures:
Those steps are included in the monetary measures which are adopted by the central bank of the country to regulate money and credit.
Following are the steps taken by the central bank to control inflation:
(i) To Control Over the Amount of Money:
Controlling the amount of money is good step to check the inflation. So, the central bank takes the securities while issuing notes. The central bank must be extremely careful while issuing new currencies so that it should encourage the inflation.
(ii) Credit Control:
The inflation can be controlled by the central bank by credit regulation also. For this the central bank should increase the bank rate and sell the government securities in the open market. Besides, it should also have a proper control on the credit creation by the commercial banks.
(iii) Replacement of Old Money to New Money:
When the inflation achieves a critical form, the old currency should be replaced with a new one.
(2) Fiscal Measures:
Following steps is included under it:
(i) Increase in Taxes:
The government should increase the rate of old taxes on people to check the inflation and it should reduce the purchasing power of people by imposing new direct and indirect taxes.
(ii) Reduction in Public Expenditure:
The government should regulate the public expenditure during the inflation. Particularly, non-productive expenses must be checked so that the rises in prices can be controlled.
(iii) Increase in Public Debt:
To control the inflation, it is essential that the government should take more and more loans from the people to invest it in productive activities. This will reduce the purchasing power of people on one hand and increase the amount of production on the other.
(iv) Encouragement to Savings:
The Government should discourage consumption by imposing taxes on consumer goods and it should encourage savings by bringing new schemes related to savings. But the essential goods of consumption should not be imposed with heavy taxes.
(v) Balanced Budget:
The government should avoid a deficit budget because extra notes will have to be issued to meet this deficit and it will promote the inflation. So, as far as possible, the government should keep a balanced budget.
(vi) Increase in Production:
Increasing production is also an important measure to check the inflation. So, the Government should encourage such industries which can produce consumer goods instantly.
(3) Other Measures:
Some other measures of controlling the inflation are as follows:
(i) Price Control and Rationing:
When there is very much increase in the prices of inflation, the government does the rationing of very essential commodities. It means the government makes the arrangement of selling these goods at cheap rates through a separate distribution system which is availed with the help of ration cards.
The government gives economic aids to the producers to increase the production and reduce the cost of production of consumer goods. Thus, a balance in the economy can be maintained by checking the inflation.