Term paper

Managerial economics

Topic-:

INFLATIONARY INCIDENCE ON CONSUMER

EQUILIBRIUM

Submitted to:- Submitted by:-

Mr. Vivek Chaturvedi

Prateek Mishra (A-16)

Contents
1. Preface

2. Acknowledgement

3. Introduction

4. Objectives of study

5. Literature review

6. Methodology: - sources of data

7. Conclusion

8. References and Bibliography

 ACKNOWLEDGEMENT

I take this opportunity to present my votes of thanks to all those guidepost who really acted

as lightening pillars to enlighten our way throughout this project to

successful and satisfactory completion of this study.

We are really grateful to our HOD for providing us with an opportunity to undertake

this project in this university and providing us with all the facilities. We are highly thankful

to Mr. VIVEK CHATURVEDI for her active support, valuable time and advice, whole-

hearted guidance, sincere cooperation and pains-taking involvement during the study and in

completing the assignment of preparing the said project within the time stipulated.

Lastly, We are thankful to all those, particularly the various friends , who have been

instrumental in creating proper, healthy and conductive environment and including new and

fresh innovative ideas for us during the project, their help, it would have been extremely

difficult for us to prepare the project in a time bound framework.

INTRODUCTION OF INFLATION

One of the most important economic concepts is inflation. At its most basic level, inflation is
simply a rise in prices. Over time, as the cost of goods and services increase, the value of a dollar
is going to go down because you won't be able to purchase as much with that dollar as you could
have last month or last year. Of course, it seems like the cost of goods are always going up, at
least to an extent, even when inflation is thought to be in check. It is important to note that some
amount of inflation is considered normal (actually, as we explain below, because of its
relationship with unemployment, some inflation is actually desirable). While the annual rate of
inflation has fluctuated greatly over the last half century, ranging from nearly zero inflation to
23% inflation, the Fed actively tries to maintain a specific rate of inflation, which is usually 2-
3% but can vary depending on circumstances. Deflation (for example, -1%) occurs when prices
actually decrease over a period of time. Please note that deflation is not the same as disinflation,
which is when the rate of inflation decreases but stays positive.

INTRODUCTION OF CONSUMER EQUILIBRIUM

When consumers make choices about the quantity of goods and services to consume, it is
presumed that their objective is to maximize total utility. In maximizing total utility, the
consumer faces a number of constraints, the most important of which are the
consumer's income and the prices of the goods and services that the consumer wishes to
consume. The consumer's effort to maximize total utility, subject to these constraints, is
referred to as the consumer's problem. The solution to the consumer's problem, which
entails decisions about how much the consumer will consume of a number of goods and
services, is referred to as consumer equilibrium.

OBJECTIVES OF STUDY
 1. HOW INFLATION IS MEASURED

2. DETERMINATION OF CONSUMER EQUILIBRIUM

3. NEGATIVE EFFECT OF INFLATION ON CONSUMER

4. POSITIVE EFFECT OF INFLATION ON COPNSUMER

5. ROLE OF GOVERNMENT IN CONTROLLING INFLATION

1. HOW INFLATION IS MEASURED

There are two main indices used to measure inflation. The first is the Consumer Price Index,
orthe CPI . The CPI is a measure of the price of a set group of goods and services. The "bundle,"
as the group is known, contains items such as food, clothing, gasoline, and even computers. The
amount of inflation is measured by the change in the cost of the bundle: if it costs 5% more to
purchase the bundle than it did one year before, there has been a 5% annual rate of inflation over
that period based on the CPI. You will also often hear about the "Core Rate" or the "Core CPI."
There are certain items in the bundle used to measure the CPI that are extremely volatile, such as
gasoline prices. By eliminating the items that can significantly affect the cost of the bundle (in
either direction) on a month-to-month basis, the Core rate is thought to be a better indicator of
real inflation, the slow, but steady increase in the price of goods and services.

The second measure of inflation is the Producer Price Index, or the PPI . While the CPI indicates
the change in the purchasing power of a consumer, the PPI measures the change in the
purchasing power of the producers of those goods. The PPI measures how much producers of
products are getting on the wholesale level, i.e. the price at which a good is sold to other
businesses before the good is sold to a consumer. The PPI actually combines a series of smaller
indices that cross many industries and measure the prices for three types of goods: crude,
intermediate and finished. Generally, the market are most concerned with the finished goods
because these are a strong indicator of what will happen with future CPI reports. The CPI is a
more popular measure of inflation than the PPI, but investors watch both closely.

INDIAN INFALTION AND TREND

India has a rich tradition of collection and Circulation of price statistics dating back
to 1861 when the Index of Indian Prices was released. Currently, there are five
different primary measures of inflation – the Wholesale Price Index (WPI) and four
measures of the Consumer Price Index (CPI). In addition, Gross Domestic Product
(GDP) deflator and Private
Final Consumption Expenditure (PFCE) deflator from the National Accounts
Statistics (NAS) provide implicit economy-wide inflation estimate. The WPI is
considered as the headline inflation measure because of its availability at high
frequency1, until recently, national coverage and availability of disaggregated data
which facilitate better analysis of inflation.

Even as each of the measures has its strengths and weaknesses, the selected
measure of inflation should broadly capture the interplay of effective demand and
supply in the economy at frequent intervals. However, the trend in various
measures of inflation during the recent years has raised several conceptual
measurement issues of inflation. First, the divergence between WPI inflation and
CPI inflation has widened. Second, the representativeness of WPI has reduced as it
does not capture the price movement in the services sector which has a larger and
increasing share of GDP – about 65 per cent in 2008–09. Third, old base periods –
for WPI (1993–94), CPI-UNME (1984–85), CPI-RL (1986–87), CPI-AL (1986–
87) and CPI-IW (2001) – fail to capture the rapid structural changes in the
economy.
As the retail market receives commodities from wholesale market, it is expected
that the change in the prices of commodities in wholesale market would normally
transmit to the retail market. Granger causality test in a vector auto-regression
(VAR) framework using monthly WPI and CPIs indicates that at the trend level
CPIs lag behind WPI by a month.
There is also a long run co integrating relationship between WPI and CPI.
Therefore, WPI and CPIs in India may not move away from each other in the long-
run.
2.DETERMINATION OF CONSUMER EQUILIBRIUM

Determination of consumer equilibrium. Consider the simple case of a consumer who

cares about consuming only two goods: good 1 and good 2. This consumer knows the prices
of goods 1 and 2 and has a fixed income or budget that can be used to purchase quantities of
goods 1 and 2. The consumer will purchase quantities of goods 1 and 2 so as to completely
exhaust the budget for such purchases. The actual quantities purchased of each good are
determined by the condition for consumer equilibrium, which is

This condition states that the marginal utility per dollar spent on good 1 must equal the
marginal utility per dollar spent on good 2. If, for example, the marginal utility per dollar
spent on good 1 were higher than the marginal utility per dollar spent on good 2, then it
would make sense for the consumer to purchase more of good 1 rather than purchasing any
more of good 2. After purchasing more and more of good 1, the marginal utility of good 1
will eventually fall due to the law of diminishing marginal utility, so that the marginal
utility per dollar spent on good 1 will eventually equal that of good 2. Of course, the amount
purchased of goods 1 and 2 cannot be limitless and will depend not only on the marginal
utilities per dollar spent, but also on the consumer's budget.
An example. To illustrate how the consumer equilibrium condition determines
the quantity of goods 1 and 2 that the consumer demands, suppose that the price of good 1
is $2 per unit and the price of good 2 is $1 per unit. Suppose also that the consumer has a
budget of $5. The marginal utility ( MU) that the consumer receives from consuming 1 to 4
units of goods 1 and 2 is reported in Table 1 . Here, marginal utility is measured in fictional
units called utils, which serve to quantify the consumer's additional utility or satisfaction
from consuming different quantities of goods 1 and 2. The larger the number of utils, the
greater is the consumer's marginal utility from consuming that unit of the good. Table 1 also
reports the ratio of the consumer's marginal utility to the price of each good. For example,
the consumer receives 24 utils from consuming the first unit of good 1, and the price of
good 1 is $2. Hence, the ratio of the marginal utility of the first unit of good 1 to the price
of good 1 is 12.
TABLE 1 Illustration of Consumer Equilibrium. Price of good 1 = $2, Price of good 2 = $1, Budget = $5
Units of MU of goodMU/price of goodUnits of goodMU of goodMU/price of good
good 1 1 1 2 2 2
1 24 12 1 9 9
2 18 9 2 8 8
3 12 6 3 5 5
4 6 3 4 1 1
The consumer equilibrium is found by comparing the marginal utility per dollar spent (the
ratio of the marginal utility to the price of a good) for goods 1 and 2, subject to the
constraint that the consumer does not exceed her budget of $5. The marginal utility per
dollar spent on the first unit of good 1 is greater than the marginal utility per dollar spent on
the first unit of good 2(12 utils > 9 utils). Because the price of good 1 is $2 per unit, the
consumer can afford to purchase this first unit of good 1, and so she does. She now has $5 −
$2 = $3 remaining in her budget. The consumer's next step is to compare the marginal
utility per dollar spent on the second unit of good 1 with marginal utility per dollar spent on
the first unit of good 2. Because these ratios are both equal to 9 utils, the consumer
is indifferent between purchasing the second unit of good 1 and first unit of good 2, so she
purchases both. She can afford to do so because the second unit of good 1 costs $2 and the
first unit of good 2 costs $1, for a total of $3. At this point, the consumer has exhausted her
budget of $5 and has arrived at the consumer equilibrium, where the marginal utilities per
dollar spent are equal. The consumer's equilibrium choice is to purchase 2 units of good 1
and 1 unit of good 2.
The condition for consumer equilibrium can be extended to the more realistic case where
the consumer must choose how much to consume of many different goods. When there
are N > 2 goods to choose from, the consumer equilibrium condition is to equate all of the
marginal utilities per dollar spent,
Subject to the constraint that the consumer's purchases do not exceed her budget.

3. NEGATIVE EFFECT OF INFLATION ON CONSUMER

Negative Effects of Inflation on Low-Income People

Prices go up when there is inflation.

Inflation is the diminishing of purchasing power by consumers due to the rising costs of goods
and services. Inflation simply means that a consumer's ability to purchase goods and services
decreases as costs rise without a complementary rise in the consumer's income.

There are two types of inflation: monetary inflation and price inflation. Monetary inflation is a
rise in the amount of money in the economy--the more money in the economy, the less value
money holds. Price inflation is a rise of prices for goods and services.

1. Decrease in purchasing power: During an inflationary period, low-income people are the
first in the economy to experience limits on purchasing power. Because the dollar is worth less
in an inflationary cycle and low-income people are a part of a fixed-income group, their ability
to purchase goods and services diminishes as prices rises.

An example would be staples such as groceries. During inflationary cycles, low-income people
are not able to make purchases they normally would. As a result, demand drops. Once demand
drops, grocers, grocer suppliers, and farmers limit their production. Because there is less supply,
the costs rise.
2. Limited employment opportunity: During inflationary cycles, companies faced with falling
demand will limit production. The downturn in production leads to the need for few unskilled
workers, and low-income people, typically not having an advanced education are among the first
of the workforce to feel the effects of inflation through their place of work.

3. Credit: Low-income people often turn to credit as a means of making necessary purchases
they cannot afford as prices rise. Because of the exaggerated use of credit for purchases, low-
income people become overextended on their credit and reach credit limits faster. What follows
is an inability to make monthly payments, and as a result, fees are charged and interest rates rise.

NEGATIVE EFFECTS OF INFLATION ON ECONOMY

Many economists do not have a solid definition for inflation. The traditional definition and that
primarily used by the Austrian school of economics is that inflation is an increase in the currency
supply and deflation is a decrease in the currency supply. Many court economists, particularly
from the Keynesian school, like to define inflation as a rise in prices.

But a rise in prices is merely a symptom of inflation much like wet streets are a symptom of rain.
But to confuse wet streets for rain is to confuse cause and effect. But these court economists
confuse lots of things; particularly their students. Are we in inflation or deflation? But the
average person is beginning to feel the negative effects of inflation on the Economy in their own
life. Commodities are approaching record high prices and these costs are filtering through to
consumable goods.

An example would be orange juice. Tropicana has recently changed their 64 ounce container to a
59 ounce container but there has been no corresponding decrease in price. When asked why the
customer service representative responded, “Our consumer research shows that most shoppers,
when given a choice between a price increase and slightly less contents, prefer to hold the line
on prices.”

Because wages have not increase approximately 10% therefore the volume decrease of 8%
lowers the standard of living for the average American. A lower standard of living is one of
many negative effects of inflation that to individuals in the economy.

A decrease of about 8% seems to be low. For example, 7-Up decreased their bottle from 20
ounces to 16.9 ounces, or 15.5% decrease, and Scott toilet paper decreased the width of a roll
from 4.5 inches to 4.125 inches or about 8.3%.

GOLD IS THE CASH KING

During deflation cash is king and gold is emperor. This is because gold is a tangible asset and
can never become worthless through the hyperinflation like little colored coupons; Yen, Euros,
Dollars, etc.

During The Great Credit Contraction which has only just begun eventually all little colored
coupons will return to their intrinsic value which is worthless. Like newspapers, fiat currency,
fractional reserve banking and central banks are barbarous relics in the Information Age and
there are much more efficient forms of currency that will be invented and adopted.

As I wrote about in Gold and the Oil Majors Revisited:

At the current price of gold the $54.2B of stock repurchases from five measly companieswill
only yield about 1,432 metric tons of gold or about 359 less tons than the hypothetical. For
comparison Venezuela is the 16th largest holder with 363.9 tons and the United Kingdom is the
17th largest holder with 310.3 tons.

Currently, the five oil majors have about $250B in current assets on their balance sheets. That
would purchase about 6,232 tons of gold. At least with that much physical gold the oil majors
would be assured of making payroll. Why they do not hold any of the precious metals on their
balance sheets is truly baffling.

4. POSITIVE EFFECT OF INFLATION ON CONSUMER

POSITIVE
Labor-market adjustments

Keynesians believe that nominal wages are slow to adjust downwards. This can lead to
prolonged disequilibrium and high unemployment in the labor market. Since inflation
would lower the real wage if nominal wages are kept constant, Keynesians argue that
some inflation is good for the economy, as it would allow labor markets to reach
equilibrium faster.

Debt relief

Debtors who have debts with a fixed nominal rate of interest will see a reduction in the
"real" interest rate as the inflation rate rises. The “real” interest on a loan is the nominal
rate minus the inflation rate. (R=n-i) For example if you take a loan where the stated
interest rate is 6% and the inflation rate is at 3%, the real interest rate that you are paying
for the loan is 3%. It would also hold true that if you had a loan at a fixed interest rate of
6% and the inflation rate jumped to 20% you would have a real interest rate of -14%.
Banks and other lenders adjust for this inflation risk either by including an inflation
premium in the costs of lending the money by creating a higher initial stated interest rate
or by setting the interest at a variable rate.

Room to maneuver

The primary tools for controlling the money supply are the ability to set the discount rate,
the rate at which banks can borrow from the central bank, and open market operations
which are the central bank's interventions into the bonds market with the aim of affecting
the nominal interest rate. If an economy finds itself in a recession with already low, or
even zero, nominal interest rates, then the bank cannot cut these rates further (since
negative nominal interest rates are impossible) in order to stimulate the economy - this
situation is known as a liquidity trap. A moderate level of inflation tends to ensure that
nominal interest rates stay sufficiently above zero so that if the need arises the bank can
cut the nominal interest rate.

Tobin effect
 The Nobel prizewinning economist James Tobin at one point argued that a moderate
level of inflation can increase investment in an economy leading to faster growth or at
least a higher steady state level of income. This is because inflation lowers the real return
on monetary assets relative to real assets, such as physical capital. To avoid this effect of
inflation, investors would switch from holding their assets as money (or a similar,
susceptible-to-inflation, form) to investing in real capital projects. See Tobin monetary
model

Causes of Inflation

The Bank of England, central bank of the United Kingdom, monitors causes and attempts to
control inflation.

Historically, a great deal of economic literature was concerned with the question of what causes
inflation and what effect it has. There were different schools of thought as to the causes of
inflation. Most can be divided into two broad areas: quality theories of inflation and quantity
theories of inflation. The quality theory of inflation rests on the expectation of a seller accepting
currency to be able to exchange that currency at a later time for goods that are desirable as a
buyer. The quantity theory of inflation rests on the quantity equation of money that relates the
money supply, its velocity, and the nominal value of exchanges. Adam Smith and David Hume
proposed a quantity theory of inflation for money, and a quality theory of inflation for
production.

Currently, the quantity theory of money is widely accepted as an accurate model of inflation in
the long run. Consequently, there is now broad agreement among economists that in the long
run, the inflation rate is essentially dependent on the growth rate of money supply. However, in
the short and medium term inflation may be affected by supply and demand pressures in the
economy, and influenced by the relative elasticity of wages, prices and interest rates. The
question of whether the short-term effects last long enough to be important is the central topic of
debate between monetarist and Keynesian economists. In monetarism prices and wages adjust
quickly enough to make other factors merely marginal behavior on a general trend-line. In the
Keynesian view, prices and wages adjust at different rates, and these differences have enough
effects on real output to be "long term" in the view of people in an economy.

5. ROLE OF GOVERNMENT IN CONTROLLING INFLATION

For hundreds of years before the 20th century the value of the pound had remained almost the
same. There where some fluctuations, which where always balanced by the appreciation.
 Then during the First World War the pound decreased in its value massively. Although during
the recession pound appreciated again, after the 2nd World War depreciation has been
remarkable, leaving the pound with a buying power of less than 2% of its value in 1900.
This phenomenon was called inflation and since 1970s the main aim of the conservative
government has been to reduce it. To explain how it does this I must first explain the different
causes of inflation.
The official measure of the inflation is the increase of the general level of prices measured
over a period of time (a year usually), and RPI, TPi or CED is used as a measurement.
First type of inflation is so called cost-push inflation. It basically means that increasing costs
of factors of production (wages, rent interest, cost of raw materials, increased normal profit
requirement) push up the general level of prices. This applies to the aggregate supply side of the
economy and arises partly because general wage costs arise, for example the powerful trade
unions might have pushed up wages without increasing the productivity.
Import prices play a role as well, because nowadays no country is independent of the others.
When a country has lower inflation than others it tends to "import" inflation with its foreign
trade because foreign goods get more expensive. Also, for example, the massive rise in oil prices
affected western oil-importing economies and caused inflation.
The changing exchange rates also cause inflation. It is estimated that a 4% devaluation in a
currency raises inflation by 1%.
As the production costs of the firm raise it has to increase its price to cover the costs. Then in
turn, as the goods are expensive, labour demands wage increases that will increase the
production costs even further.
Especially sensitive to increasing production costs are firms using mark-up pricing as they
price their product directly according to the cost plus add a marginal.
If the expenditure line C+I+G+(X-M) increases (for example due to an expansionary budget),
then the new equilibrium shifts from Yfe to Ye leaving an inflationary gap. This is called so,
because the economy cannot produce anymore, so the excess expenditure capacity is eliminated
by raising the prices. Both Keynesians and monetarists believe that this is associated with an
increase in money supply, only Keynesians think that demand brings about the increase in
money supply, whereas monetarists think it is the money supply increase that causes the rise in
demand.
Third type of inflation is so called monetary inflation. As in the economy MxV=PxT where M
is the money supply, V is the velocity, P is the general price level and T is the number of
transactions. Now, monetarists believe that V and T are constants, so they thought that money
supply and inflation are directly related. This did not imply in 1980 when inflation raised, but
money supply remained constant. And indeed the velocity of Mo has increased from 10 in 1970
to 30 in 1990, but the velocity of M4 is much smaller and actually decreased from 1982 to 1987
due to banks making the savings more attractive.
Money supply can rise due to low interest rates (but hight interest might attract hot money),
no restrictions on lending or liberate lending policy (especially recently).
 In reality the inflation is often multicausal and that is why it is hard to find a real pattern. The
chief cause of inflation in one year might not be the same as in the next year.
The consequences of inflation are quite serious. It has bad effect on growth (especially argued
by monetarist), because it increases uncertainty and discourages savings. It is also damaging for
the balance of payment, because it makes imports cheaper. It distributes incomes in favour of
profit earning, away from fixed earning pensioners, whose real income will fall.
There are great controversies regarding the consequences of inflation to the employment.
Professor Philips worked before 1965 and invented the Philips curve, showing that inflation and
unemployment are inversely related inflation being zero about when unemployment in 5.5%, but
latter statistical analyses have not proved its view, indeed it has been argued that more inflation
causes more unemployment, or that the inflation affects unemployment only in the short-run
whereas in the long run the aggregate supply of labour is perfectly inelastic.
The government has several ways to control inflation. It can do this by means of fiscal policy,
that manages the aggregate demand by using government spending.
To reduce inflation government should reduce expenditure and raise taxes. This policy,
anyway, works only against demand caused inflation and faces great opposition from the people
as they are made worse of by reducing spending on health-care etc. The fiscal policy is very
unpopular.
Main weapon to fight against inflation after 1970 has been monetary policy, widely used by
Conservatives. The main policies have included controlling interest rates (dear money policy)
and medium-term financial strategy (setting guidelines of how much M3 can raise. This system
was abolished, because any statistical regularity will tend to collapse once pressure is placed
upon it for control purposes (Goodhart's law), so happened to M3 and it grew too rapidly). Also
the real inflation is much caused by peoples expatiation on future inflation, reducing the
expectations of inflation in the future has been one of the governments' aims.
A very effective way to reduce the cost push inflation is by direct intervention or prices and
incomes' policy. This is when government takes measures to restrict the increase in wages
(incomes) and prices.
There are two types of direct intervention, like statutory - govn freezes wages and prices and
voluntary - government tries through argument and persuasion to make firms adopt smaller
prices and wages.
The problems with direct intervention are the confrontation with trade unions and employers,
because the prices are much more easily controlled in public sector, it tends to discriminate in
favour of private sector. It also distorts market forces, because expanding sectors can't find any
new workers, because of the low price, whereas declining sectors hold on to theirs. This policy
also tends not to take account the differentials, usually flat base policy is used (e.g. every worker
can get a pay rise of £4 a week), which is unfair to people earning higher salaries as their
percentage pay rise is much smaller, in the other hand it makes the distribution of income more
fair.
 Wages' drift will tend to occur, too. The earning will rise faster than wages due to ridiculous
bonuses and overtime work (e.g. miners were paid for taking a shower). Usually the normal
work-time is reduced and as the workers work the same time they are paid an overtime rate.
Direct intervention policies in the UK have not been used lately. Anyway, in the past they
were quite usual. It was first used in 1945 and it was successful till 1950, but collapsed in
inflation. Labour and Conservative governments promised not to use it before the election, but
then were faced with rising inflation and finally had to. This playing continued for quite a while
until in 1980-ies it was agreed that a long-term strategy should be worked out worked out.
Direct intervention policy is more effective in short-term, but it stores up trouble for the
future, because prices tend to rise rapidly as soon as the policy is abandoned.

Article:-Is openness inflationary? Imperfect competition

and monetary market:
Richard Evans (2005). This paper asks the question of how the degree of openness of an
economy affects the equilibrium inflation level in a simple two-country OLG model with
imperfect competition in which the monetary authority in each country chooses the money
growth rate to maximize the welfare of its citizens

Monetary Institutions, Monopolistic Competition, Unionized

Labour Markets and Economic Performance
Cukierman, Alex
Dalmazzo, Alberto

. This paper makes a step in the direction of realism by recognizing that prices are set by
monopolistically competitive firms and that the monetary authority affects the price level and
inflation indirectly through its choice of money supply & it reduces both inflation and
unemployment sufficiently to make the appointment of such a bank socially optimal.

Excess Wages Tax:

February1995
In this paper, effects of EWT on the behavior of a profit-maximizing enterprise under
monopsony, its incidence on wages and profits, and its impact on inflation are analyzed. The
effect of EWT on an enterprise that maximizes workers` income is also examined with some
observations on EWT`s impact on managerial behavior. Finally, recent experience with EWT is
assessed and compared to that suggested by the model.

The Effect of Inflation on the Prices of Land and Gold

Martin S.Feldstein

February1981

Author observed that the traditional theory implies that the relative price of consumer goods and
of such real assets as land and gold should not be permanently affected by the rate of inflation. A
change in the general rate of inflation should, in equilibrium, cause an equal change in the rate
of inflation for each asset price

Is Inflation Perceived by Polish Consumers Driven by Prices of Frequently Bought Goods and
Services?

Inflation perceived by consumers may differ from official statistics due to different baskets of
goods and services both variables refer to. Consumers may be substantially influenced by prices
of frequent purchases. Such an effect was noted in some European countries at the time of the
launch of the euro. This study tests the relationship between price changes of different baskets of
goods and services and consumer inflation perception in Poland. A relatively fast increase in
prices of frequently purchased products characterised the period of Polish accession to the
European Union, which offers a good basis for analysing its impact on inflation perception.

Research Methodology:
RESEARCH

Research is a Purposeful investigation. It is a scientific and systematic search for knowledge and
information on a specific topic. Research is useful and Research objective can be achieved if it is
done in Propose Process.

METHODOLOGY
The word “Methodology” spells the meaning itself i.e. the method used by the researches in
obtaining information. The data (Information can be collected from the Primary sources and
Secondary sources.)

Data collocation method-

There are two types of data collocation method-

1. Primary

2. Secondary

Primary data-

Primary data are those which are collected a fresh and for the first time and thus happen to be
original in character.

Method of Primary data collection

1. Observation method
2. Interview method
3. Questionnaire method
4. Schedule method
Secondary Data
Secondary data means data that are already available, they refer to the data which have
already been collected and analyzed by someone else. In this case he is certainly not
conformed to the problems that are usually associated with the collection of originals data.
Secondary data may either be published data or unpublished data.

My data collection in primary source was questionnaire and schedule. In secondary

source of data collection I have use internet, magazine, books, and Indian journal of
marketing.

Researcher must be very careful in using secondary data. He must make a minute scrutiny
because it is just possible that the secondary data may be unsuitable or may be inadequate in
the context of the problem which the researcher wants to study.
 Source of Secondary data

The secondary source of data collection is the Books, Internet, News paper, etc. These are
the secondary source of data collocation.

CONCLUSION
The extremely negative effects of inflation on the economy and the Federal Reserve’s disastrous
policies are exacerbating the Greater Depression. Real economic pain is being felt by those who
most impacted by the rise in consumable, particularly food, prices. Portions are being reduced,
prices are being raised and standard of living is going down while the economy continues to die.
These are all predictable negative effects of inflation on the economy and the Federal Reserve’s
hand in everyone’s cookie jar

REFERENCES AND BIBLIOGRAPHY

BOOKS PREFERED:-

MANAGERIAL ECONOMICS- GEETIKA AND GYALI GHOSH

BOOKS OF MODERN THEORY – K. K. DWETTE NEWSPAPER AND JOURNALS

Economics Times-Business International

Business Standard

Journal of International Business Research

WEBSITES:-

http://commerce.nic.in/ad_cases.htm,

http://commerce.nic.in/Guide.PDF

http://www.centad.org/relatedinfo13.asp

http://www.proquest.com
http://www.cliffsnotes.com/study_guide/Consumer-Equilibrium.topicArticleId-9789,articleId-
9753.html#ixzz13dDyD2dS