Layman's economics

 Understanding frequently used terms in in very simple ye conceptual way :-

INFLATION  AND DEFLATION:-
Inflation-"It is the sustained increase in the general price level" of basket of commodities and service. Remember a saying Commodities and services are real and not the money, eg Let two years back cost of one marker was Rs 10 and now it has increased to Rs 20.So it simply means that now yer Rs 10 can buy only half of that commodity, this means that value of money w.r.t has decreased ( this is w.r.t within a country nothing to do with foreign ). Similarly Deflation means "value of money has increased".
For example let a creditor gives a loan of 10,000 to a debtor and then next yr inflation occurs then if the debtor returns 10000 to creditor, it means creditor loses and debtor gains.So to tackle this the creditor increases the interest rates.

Now what's a Inflation cycle ?

Ans:- Price increase result in-
 profit- increase result in-                ( read it like, Price increase results in profit increase and profit increase      production- increase result in            results in....)
 employment- increase result in
 purchasing power- increase result in
 demand increase result in
 price increase.

Now what's Philip Cycle ?

Now what's Engels curve ?

On y axis is % of income spent on food item and on x axis is income ( here we are talking strictly about the basic food needed otherwise we can spend a fuckload on food and waste them naive of the situation of people starving ! pardon me. ). So your income was Rs 5000 and basic necessity food costs Rs 500 (i.e 10 % ) but your income increased and this percentage went down to 1 %.

Observation Curve -

CURVES ARE SEXY INDEED ! 

Note that, Theoretically both are bad but deflation is worst .In Inflation you get something and there is a saying by my math sir form school "something is better than nothing".But in Deflation you will lose your job, isn't that horrible. !!!

Following causes Inflation Increase :-

• demand increase
• supply decrease
• cost (input's one) increase

Inflation Estimation:-

• Whole sale price index (WPI).

1. Prepared by Office of economics advice under Ministry of commerce and industry
2. base year is 2004-05.
3. maximum weightage  to Manufactured products-64.97 %

• CPI- Consumer price index

1. new one
2. RBI has switched to it.(2014)
3. Prepared by Central Statistic organization Under MOSPI( statistics and planning ).

Calculation Of Inflation  :-

Take 676 commodities within 3rd week of august (2014).

1. 676 commodity's price x August 2014 x weitage =A
2. 676 commodity's price x August 2014 x weitage=B

But We can't compare 2 yr's price as commodities are same but price changes 

( remember as I said that before ! ). So bring them to a base year ( convert into base yr cost) and compare .

Inflation =(b-a)/a x 100.

Corrections Invited .

Don't check for non technical errors. !!

thanks.