Project report on inflation

Literature review: -

According to theoretical framework, nominal interest rates integrate economic agents' expectations of real interest rates and inflation. Inflation expectations, like interest rates in the economic literature, are not a single object with varied levels and meanings for different agents with varying risk profiles and end-uses of money. If households expect inflation to rise in the medium term and suspect low returns due to low real interest rates, it may be preferable for them to invest in commodities such as precious metals, jewellery, and so on, rather than saving in term deposits (investment in real estate, which requires a larger initial outlay, may not be as impacted in the short to medium term). Alternatively, instead of withdrawing current savings, consumers may decide to achieve substantially better returns by engaging in alternative forms of investment, resulting in undesired consequences such as higher interest rates for producers, decreased production, higher imports, and so on. Devendra Pratap Singh, Aditya Mishra and Purnima Shaw, 2022
Inflation is a regular economic occurrence in market-driven economies, and it has existed since the invention of money as a means of exchange. Inflation is defined as an increase in the overall level of prices of goods and services in an economy over time. When the overall price level rises, it means that each unit of money can purchase fewer products and services. In other terms, inflation is the loss of money's buying power. Inflationary price rises generate an atmosphere of uncertainty in the economy, which has a negative impact on investment and savings. If customers and sellers begin stockpiling items in anticipation of more price increases, high inflation may result in shortages of goods. Inflationary pressures persist, causing public anger and resentment, which is a major source of concern for the government and policymakers. Dr. Sunil Kumar Dalal, 2021
Higher inflation (INF) has been viewed as an economic retarding and a way of lowering the common man's quality of living. As a result, macroeconomic management in numerous economies, including India, has prioritized maintaining a steady price level characterized by a low INF rate. Among the various elements that contribute to inflationary tendencies in an economy, including monetary shocks, structural shocks, demand shocks, external shocks, and demographic shifts, the issue of INF has been linked to government fiscal policy decisions. the theoretical outlines for establishing a relationship between inflationary pressures and government budgetary deficits in an economy. Javed Ahmad Bhat, Naresh Kumar Sharma, 2020
Inflation, like its prices, has long been a source of anxiety. These expenditures are incurred as a result of either expected or unplanned inflation. However, unforeseen inflation costs, also known as redistributive and disruptive costs, have received more attention than anticipated inflation costs. This is because predicted inflation expenses are typically regarded low in comparison to unforeseen inflation expenditures. According to the method, when nominal interest rises in response to rising inflation, demand for cash balances drops. The area under the money demand curve, which indicates the surplus of consumers, shrinks as cash demand falls. When a result, as inflation rises, the surplus of consumers decreases. Taxation revenue is a portion of the consumer surplus that goes to the government (which is rebated back to the economy in the form of non-distortionary lump-sum transfers). Irfan Ahmad Shah, Manmohan Lal Agarwal, Srikanta Kundu, 2019