In Economics we
say that prices should be such to clear the market. Inflation targeting may be of less use
because we should let the prices become market clearing. When we choose
inflation targeting we do not let prices go below the prices in the base year
which means we have set a limit for compression of prices and if it goes below
that it is a deflation. But, deflation is a good-thing because it decreases
prices which are good for competitive devaluation. What we try to achieve by
depreciation? More demand, less prices relative to the money-supply and more
exports. We gamble on other people's income. There should be a "LAW OF
PRICES”, too, means "less price more demand and more prices less
demand" And, a product's demand is largely determined by its prices. How
many people can afford it and lower prices will attract more buyers. You can
earn your long term profit in the short run if we reach a wider population by
keeping prices low. It is called scale-economies. When prices go down it is a
moment of relief and we should welcome it by floating a lower redenomination.
But by redenomination i mean the difference between paisa and rupee. When we
move from rupee to paisa it is a lower redenomination and if we move from paisa
to rupee it is a higher redenomination. The central bank commits that the value
of money must be increasing and not decreasing. But what generally happens a
Rupee looses some of its value every year...
Friday, May 3, 2013
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