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Economics Macro Commentary - Coggle Diagram
Economics Macro Commentary
Basic Info
Date Accessed: 17th May 2022
Word Count:
Date Published: 4th May 2022
Section of the syllabus: Macroeconomics
Source: Business Today
Key concepts being used: Economic Well-being and/or change
Title: RBI Guv Das announces hike in interest rate by 40 bps to 4.40% in 'off-cycle' MPC meet
Plan
Explain what has caused the cost push inflation
Draw a diagram showing left shift in the SRAS, leading to cost push inflation
Say this is a problem and hence the RBI implemented a contractionary monetary policy
Explain the details of the policy with reference to a diagram (monetarist)
Explain how the policy will affect the economy positively (Long term and short term, all the stakeholders)
Explain how the policy will affect the economy negatively
Conclude with your opinion whether the policy was good or not and what else the government could have done to make the policy better
1.
The geopolitical tensions between countries has led to a decrease in trade, which has restricted resources for the economies. As a result, resource prices are rising leading to higher cost of production
Covid 19 has bottlenecked supply chains again reducing supply and hence increasing resource costs. As cost of production increases, the firms start to lose profit and hence production decreases. This leads a left shift in SRAS
2.
Draw a monetarist diagram and show a left shift in SRAS
This would lead to a decrease in GDP and employment and an increase in price levels.
Explain the same using words and points on the diagram
Explain how the inflation is driving cost of key products like food and also general increase in prices. This is causing problems for citizens and driving down living standards
3&4
This being a large problem the RBI implemented a contractionary monetary policy.
This policy included an increase in repo rates by 40 basis points and an decrease in CRR by 50 basis points
Draw the same monetarist diagram as before and show a left shift in AD following the policy
Explain the diagram with words and reference to the points on the diagram
It would cause a decrease in price levels but a further decrease in GDP and employment levels
5.
Reduced inflation
Improvement in BOP
6.
Low growth
Low employment
Low incomes/ Less spending