Inflation

INDIA AND CHINA, AMONG OTHERS IN ASIA, HAVE BEEN EXPERIENCING POSTGREAT RECESSION INFLATIONARY PRESSURES OF LATE.

WHAT ARE THE GENERAL CAUSES OF INFLATION?

DISCUSS THE WAYS SUCH INFLATIONARY PRESSURES CAN BE CONTAINED OR REDUCED

DISCUSSANT PAPER

Submitted by:

Alfonsus Bayu Asmara G1100141F

01 DEC 2011

PART 1: INTRODUCTION The main paper has provided a concise introduction to the concept of inflation and provided examples of inflation in Asia post the 2008 recession. The various causes of inflation were also explained, focusing on the concept of cost-push inflation and demand-pull inflation. Methods of controlling inflation were also discussed with a focus on monetary policy and tax reduction. Examples of inflation control efforts in India and China were also well explained to give the reader a full understanding of policies that are actually deployed to control inflation. However, the paper can be further improved firstly by explaining the monetarist and Keynesian economic view of the causes of inflation, which was not clearly defined. Secondly, the methods of controlling inflation can be also be better understood by grouping into monetary and fiscal policies. And third, this discussant paper will add several additional details regarding the inflation in China and India, including government efforts to control them.

PART 2: THE CAUSES OF INFLATION Although the causes of inflation are complex, vast, and intertwined, there are two main school of thoughts, which are the monetarists view and the Keynesian view. Each has its own share of criticism. Milton Friedman, a prominent monetarist, is known for saying: “Inflation is always and everywhere a monetary phenomenon”. Monetarists believe that, based on studies of monetary history, the most significant factor causing inflation is the supply of money. However, this theory assumes the existence of free competition and full employment. Without which, an increase in the quantity of money could

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