Economics - General Price Level - Notes - Economics, Study notes of Economics

Download Economics - General Price Level - Notes - Economics and more Study notes Economics in PDF only on Docsity! GENERAL PRICE LEVEL Introduction The study of general price level is another indicator of the health of the economy. Price level and purchasing power have inverse relationship. Increasing prices reduce people’s purchasing power and thereby bring hardship and fall in general welfare. Hence, every government tries to keep the rate of inflation under acceptable level so that economic activities are also induced and people’s parching power too remains high. Therefore, rise in real income of the people can be analyzed through the rise in inflation. Objective Reading the trend of general price level will enable us to analytically reach to a conclusion as to what had been the level of real economic development in the country. Contents Price situation during 1979-80 to 1989-90. Price situation after liberalization. Causes of price rise. Table V. Price situation during 1979-80 to 1984-85 Year Whole Sale Price Index all Commodities (1970-71=100) % Variation over the previous year 1979-80 218 - 1980-81 256 17.4 1981-82 281 9.8 1982-83 289 2.9 1983-84 316 9.4 1984-85 338 7.0 It is clear from the Table V that during 1979-80 to 1984-85, prices rose quite sharply except for the year 1982-83 when the variation in the price over previous year was only 2.9 percent. Table VI. Price situation During 1985-90 Year Whole Price Index Annual increases % (1981-82=100) 1984-85 120 6.0 1985-86 125 4.9 1986-87 133 4.7 1987-88 144 10.7 1988-89 154 5.7 1989-90 166 8.1 During the years 1985-90 the whole sale price index rather increased steadily. The annual rate of inflation ranged between 4.7% to 10.7%, which by all means can not be said as moderate. Table VII. Price Situation after Liberalization (1981-82=100 and 1993-94=100) Year Whole Sale Price Index Annual Rate of Inflation 1990-91 182.7 10.3 1991-92 207.8 13.7 1992-93 228.7 10.1 1993-94 247.8 8.4