Posts

Showing posts with the label cost push inflation

Decision Making as Output and Bounded Rationality

-
  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
Post a Comment
Read more

Notes on Inflation

-
  Inflation is a continuous increase in the general price level. It measures the changes in the price level in the economy. If the firms desire a stability in price, the price levels must remain stable. Therefore, an eye on inflation figures is no doubt important for any manager or an entrepreneur. For the inflation to be measured, there must be a construction of general price level. Generally, there are two measures that are constructed for general price level. Going back to the circular flow model, there are two actors, the firms and the households in the economy. Firms produce goods and services which the households consume. The firms sell goods at certain prices and the households consume the goods at certain other prices. There is a difference between the prices at which the firms sell and the prices at which the households consume. Therefore it becomes important to know which prices have to be taken for constructing a general price level. In all cases, price levels are constructe
Post a Comment
Read more

Will the Indian Lockdown Create Inflationary Tendencies?

-
Some studies indicate a possibility of high inflation even in the excess of 10% within the next year. The expected inflation as per the surveys seem to point towards a jump of 3-4%. Interestingly, there is a divide among the economists over the after-effects of the Wuhan pandemic. The world having locked down for more than a month has without doubt created economic disruption both through Aggregate Demand (AD) and Aggregate Supply (AS) There has been an induced halt to aggregate demand with a similar restriction on aggregate supply. Furthermore, even with the lifting of lockdown, the propensity to self-protect might make prospective consumers wary of shopping thus lower AD. At the same time, the reluctance of the workers given the risks associated with the job tasks might make them skip from work thus adding to constraints in AS. Therefore an analysis would be worth pursuing over the likely inflationary impact or otherwise of the economic shutdown caused by the Wuhan flu. There
Post a Comment
Read more