Stability in interest rate and employment and inflation, and not, too much higher interest rate and employment and inflation are feasible and consistent with a good economic policy and could bolster the credibility of the central banks... They need a flexible inflation targeting with in a band in which r* or the natural or neutral interest rate could remain stable... and expectations, too... Normally, higher interest rate expectations lower demand and increase supply and lower price expectations and vice versa and could be self-fulfilling, therefore stability in expectations are vital for managing inflation and unemployment... Managing expectations are important for the adaptive expectations and the rational expectations, both... Adaptive Expectations are based on current and past experiences, if people experience inflation they expect inflation, and vice versa, and Rational Expectations use the latest data and information and is evidence based...
INDIA needs value for rupee for domestic as well as foreign consumers, means we need a strong rupee for domestic and foreign exchange... It means that productivity would increase and prices relative to money would go down or with constant money supply which also increases the value of money and demand... The interest rate is a flexible price; interest rate could be changed depending upon employment and inflation or price level... Depreciation is an artificial tool to increase demand for exports, it increases nominal exchange rate relative to G&S, it makes money cheaper by increasing money inflation and reducing domestic demand... A strong rupee and higher domestic and foreign exchange rate and also higher imports due to increase in productivity and lower prices...
Prior to covid INDIA was one of the fast growing economies, though the economists say that it has a higher potential and the economy was still recovering from the last slow down... INDIA's fundamentals are sound; inflation was low and stable... If we say that INDIA could be the next china, with low wages and plenty of labour supply, though it requires skilling, it would not be wrong... INDIA has improved a lot on the ease of doing business... More over it has borrowed less in other currency and low interest rate in the developed countries could be used to finance the infra needs...
There would be recovery and that's sure... Employment has been hit hardest which is crucial for increasing both demand and supply... The inflation target has been set by the govt, but it is equally important to set the unemployment rate at the natural rate... The RBI too barely discusses the unemployment rate... Providing forward guidance about interest rate expectations and stimulating the economy activity requires clear unemployment and inflation targets... That would help consistency in the monetary policy...
If the RBI keeps buying dollar for reserves, it would make the strong dollar self-fulfilling... as the dollar becomes strong, the country would need more dollars to pay imports which could further increase dollar demand and price expectations...
INDIA is one of the big exporters of refined oil (fuel)... The govt could repeat the mistake of exporting the refined oil when domestic prices are skyrocketing, like the UPA continued exporting the cereals when domestic prices over-shooting at 20%... We are a democratic set up, taxes could be only be imposed by the public consent... Afterall, it is the public's money... When the govt increases taxes and prices its own cost increase, too... which could also be self- fulfilling...
Rising fuel and transport prices reduce spending, but increase government spending that involves a trade-off, at one place spending is going down, of people, and at other it is going up... Money is being taken from people and given to government which then again changes hand... It would make almost no difference to the multiplier and growth... Fuel is a necessity and important for managing inflation, higher taxes on oil reduces real incomes of the poor in the economy and higher oil prices also increase the cost for business and transport... It could not categorised as productive because it increases the price level and reduces demand... It lowers productivity...
Till farmers sell their crops individually they would be the price takers, though if they bargain collectively they could command prices and could release or cease supply to get a respectable income, like the OPEC... Moreover, if they deal with a large number of buyers, buyers would bid the prices upwards... More buyers/demand means more prices...
If everybody follow some rules of thumb, like sell only on the high price range and buy on the low price range everybody could gain... Moreover, if there is consensus, about buying and selling price, risk could be lowered, investors must avoid irrational exuberance, not expecting too high or too low...
Share quantity is also important... If all investors invest in staggered amounts/quantity, stock prices would increase in the shortrun... Returns would be multiplied...
Stock prices depend upon the growth rate, if the actual growth rate is higher than the warranted growth rate, the stock markets could be rational to continue increasing investment and demand and prices, with periodic or cyclical corrections and buying more to lower the average cost...
INDIA shall not produce goods in which it has a comparative disadvantage means what it produces at higher oppourtunity cost and/or higher prices or in which it cannot produce much or have lower productivity...
The marginal propensity to consume (MPC) of the poor’s is higher than the comparatively rich groups and inflation expectations are also important for the spending decisions and savings, too, poor people's marginal propensity to save (MPS) is also high and again also depend upon the inflation expectations, if the cost of living would increase people would also save more for the future, out of an increase in income... If people expect lower prices they delay demand and increase supply which actually lowers prices and vice versa... Though, it is also true that in the shortrun there is alimit for income and demand...
