CHAP

TER 9

Villalu
z , C am
ille Ian
ne R .
 Inflation is not a
monopoly of the
Philippines.

P
The term “inflation” is generally
used to mean any sustained or
continuing increase in price.
 TY O F
AB IL I
SI R
UNDE
 It means, that
...negates the economic
Economic
plans and the people
It means,
among the
should be able
objective of improving
policies are
to buy better
things, that the

HOWEVER,
intended to
improve the
quality of food,
people should
be able to buy
the quality of life of
standards of
live in better
houses, send
more, given the
living of income that
people!
people.
their children
to school. they have.
 First, people who have fixed
incomes are severely affected
CREDITOR
during inflation.

S
also lose out
Secondly, because of increased
prices, benefits of pensioners
during inflation
would result in a net loss.
GAI
N E RS
People who have
flexible incomes.
The speculators.

The debtor.
DE
MA
ND
PU L
L
 Those who

...greater than...
buy goods and
...what the
services desire
economy can
to purchase
produce.
goods and
services...
 The MODERN Version of
The Quantity Theory of
the Quantity Theory of
Money
Money
The greater the volume of transactions The believers in this modern version
in the economy. The higher the level are called “monetarists”. They would
of money required to finance the argue that the control of the money
transactions. If the GNP rises, it is but supply eventually determines the
natural that the transactions direction of incomes and employment
requirements for money will also rise. through the control of GNP.
COST PUSH
 FACTORS
First. Increase in cost of production.

C P
Second. Demand Cost-
for higher
Push
wages by labor
unions.
Inflation
is the type of
inflation where
Third. Monopolies in society.
increases in the
costs of production
push prices up.

Fourth. By the devaluation we have had.

Relationship
to of...
 CONSUMER PRICE INDEX RETAIL PRICE INDEX
- The most popular and the most - Designed to measure monthly
used measure as it reflects what changes of the prices at which
happens to the living standards of retailers dispose of their goods to
most of us, the consumers. consumer and end users.

MEASUREMENT OF PRICE INCREASES

WHOLESALE PRICE INDEX STOCK PRICE INDEX

- Measures monthly changes in the - Serves as a measure of the
general price level of commodities changes in, and to trace the
that flow into wholesale trade movement of the average prices of
intermediaries. company shares of stocks.
MEASURES
TO CURB
INFLATION
 CURB
- If you “curb” something, you
control it and keep it within
limits.
- Curb is equals to check or
restrain.
 INFLATION
- A general increase in prices
and fall in the purchasing value
of money.
CURB INFLATION
- To curb inflation is to reduce
the rate at which the value of
currency goes down.
- Curbing inflations is therefore
beneficial to a country’s
economy.
Two methods to curb inflation:

Monetary Fiscal
Policy Policy
Monetary
Policy
ThisThese
means measure
that forwould
monetary
likewise
policy,
2. To increase the reserveDE
Demand
1. for
Increasing
a Goods
“tight
LESSEN money”
interest
MONEYsituation
ratesIN
to inhibit
is
MA
requirements ofSupply
banks and minimize
ND
suggested,
CIRCULATION,
investments
lessening money
thus, in
or close rediscounts.
DAMPENING
circulation.
DEMAND.
If Tight
the spending
money policy
is NOTthrough
ESSENTIAL
less
If the spending is ESSENTIAL...
Govern
government
and can be spending
POSTPONED...
might
SPENDI be
NEWment TAXES should be considered
NG
ECONOMICALLY
Then the government
Spendin CORRECT,
should
to gcut down on consumption and
consider
but might POSTPONING
be POLITICALLY
Revenue such
investment.
UNSOUND.
projects.
 In cases of COST-PUSH Inflation caused by
monopoly, either in business or in labor, the
best counter-remedy is to BREAK UP THE
AMONOPOLY
second best solution is a
POWER which makes suchset of
WAGE AND PRICE
cost CONTROLS.
push possible.
[Link]
UseBangko
of moral
Sentralsuasion (atools
has several persuasion
of policy
which it may use to control money supply...
1.
3.
[Link]
Exercise
Use
Control
ofused
discount
ofbythe
ruling
anbank’s
(or
authority
authority
rediscount
reserve
toto
4. Use
5. Selective
of open market
credit controls;
operations;
influenceissue
and
requirments;
pressure,
paper
policy); money;
but not force,
banks into adhering to policy).
Fiscal
Policy
Utilization of...
Public Expenditure
Taxation
More equitable distribution of
Stable Public
Greater
growth of
employment
income over time
income Debt
and wealth
To achieve...
Desired Economic Objectives
Income

Supply of
Money
Monetary Policy Fiscal Policy
The containment of inflation
The advantage is that it is easier
Has the advantage of hitting both
rests on both the fiscal and
and quicker to impose
income and money policy

monetary authorities