Twin troubles (The Hindu, GS-3, Economy)

Context:- inflation quickened to a four-month high

How inflation is measured:-

  • Base year:-2012
  • developed by The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation
  • 3 types, CPI RL, CPI Urban, CPI all
  • Monthly basis: for urban, rural, all India.
  • Annual: with lag of one month.
  • Includes both Goods and services.

Effect of inflation:-

Positive:-

  • Helps in the growth
  • Increase income
  • helps in expansion of business.

Negative

  • May lead to hyper inflation, means Burdon on consumer.
  • rupees value will slide
  • forex reserve will decrease
  • export will decrease because foreigner will have to pay more.
  • May lead to collapse of economy
  • Examples- Recent Greece crises, Venezuela crises
  • Will lead to crowding out effect.

What RBI must do

  • Increase the bank rate.
  • Increase SLR or follow conservative monetary policy.
  • government must refrain from spending.

Download Daily Current Affairs of 15 April 2021