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Measures To Control Inflation Economics Essay

But here comes the supply which restricts. Because we have scarcity of resources to meet the demand of consumer and therefore unable to meet the demand.
This results into inflation.
Inflation is good upto a certain level, beyond a certain point it causes severe affects.
The inflation in India is due to the unemployment of men and material with rise in price. A rise in price does not lead to rise in production up till a certain stage though the country may not have attained the stage of full employment.
India has an inflation rate of 9.46% as per CPI, which is more than it is required.
Some of the countries face much more inflation. Greece crises were also affected by this.
During inflation cost of goods and services increases.
CAUSES OF INFLATION 1 Demand pulls inflation
2 Excessive growths in money supply
3 Cost push inflation
4 Structural inflation
TYPES OF INFLATION If the inflation is more than 10%, it is known as hyperinflation.
When the inflation occurs despite slow economic growth, it is known as stagflation
When inflation affects different parts of the economy, it is known as asset inflation.
When the inflation is between 3%-5% it is known as running inflation.
When the inflation is less than 3% it is known as creeping inflation
When the inflation is till 9% it is known as walking inflation.
MEASURES TO CONTROL INFLATION There are mainly three ways to control inflation. Those are as follows:
1. MONETARY MEASURES
-regulation of customer credit
-variable reserve requirement
-cooperation of central bank and commercial bank
2. FISCAL MEASURES
– reducing public expenditure
-proper utilization of taxes
-public borrowing and debt
3. OTHER MEASURES
-price control and rationing
-wage policy
-output adjustment
WPI DRIVEN INFLATION RATE FROM 1991-2012 YEAR INFLATION RATE Â Â 1991-92
13.74%
1992-93
10.76%
1993-94
8.35%
1994-95
12.60%
1995-96
7.99%
1996-97
4.61%
1997-98
4.40%
1998-99
5.95%
1999-2000
3.27%
2000-2001
7.16%
2001- 2002
3.60%
2002-2003
3.41%
2003-2004
5.46%
2004-2005
6.48%
2005-2006
4.38%
2006-2007
5.42%
2007-2008
4.75%
2008-2009
12.40%
2009-2010
10.20%
2010-2011
9.25%
2011-2012
9.46%
Sources: www.investopedia.com www.slideshare.net
We can see from the given graph that during the year 1992-93 there was decrease in inflation rate from 13.74% to 10.76%. Preferred inflation is considered as 6%. The rate of inflation decreases in the year 1999-2000 to 3.27%. The growth of economy at that time was good. In the year 2009-10 the rate of inflation was 10.20% which was again at higher rate. At present our rate of inflation is 9.46% which is not considered as suitable. Inflation occurs due to full employment in the economy. Inflation is considered good sign and also bad sign. Recently, the RBI has given 6% as the most preferred inflation rate.
GOLD PRICE In 1991 when the rate of inflation was 12.1%, the price of gold in India was Rs 4297.63. Inflation was at its peak in 1992. In 1996 the price of gold was Rs 5070 which was higher than compare to past six years.
In 2008 the price of gold reached in more than 10,000. At that time inflation was 4.75%. Graph shows an increasing trend from 1991-1996, and then from 1996-97 it had declined. Then again from 1997-2012 it shows an increasing trend. This shows not a single time the price has been decreased. Gold are frequently imported so there is always change in price due to excise duty and import duty.
There is a heavy demand for gold in India because people keep it as a security for future. Gold can be easily converted into cash.
YEAR INFLATION PRICE OF GOLD(IN RUPEES) 1991 12.1%
4297.63
1992 13.74%
4103.66
1993 10.76%
4531.87
1994 8.35%
4667.24
1995 12.60%
4957.6
1996 7.99%
5070.71
1997 4.61%
4347.07
1998 4.40%
4268
1999 5.95%
4393.56
2000 3.27%
4473.6
2001 7.16%
4579.12
2002 3.60%
5332.36
2003 3.41%
5718.95
2004 5.46%
6145.38
2005 6.48%
6900.56
2006 4.38%
9240.32
2007 5.42%
9995.62
2008 4.75%
12889.74
2009 12.40%
14700
2010 10.20%
20900
2011 9.25%
23450
2012 9.46%
30300
Sources:www.theindiaeconomy.org
CRUDE OIL YEAR INFLATION CRUDE OIL (IN DOLLAR) 1991 12.1%
$20.19
1992 13.74%
$19.25
1993 10.76%
$16.74
1994 8.35%
$15.66
1995 12.60%
$16.75
1996 7.99%
$20.46
1997 4.61%
$18.97
1998 4.40%
$19.25
1999 5.95%
$16.55
2000 3.27%
$27.40
2001 7.16%
$23.00
2002 3.60%
$22.81
2003 3.41%
$27.69
2004 5.46%
$37.41
2005 6.48%
$50.04
2006 4.38%
$58.30
2007 5.42%
$64.20
2008 4.75%
$91.48
2009 12.40%
$53.56
2010 10.20%
$71.21
2011 9.25%
$87.48
2012 9.46%
$112.20
Source:www.indianbiznews.com
The graph above shows the trend of crude oil prices from 1991-2012. There is a decreasing trend from 1991-1994. They are the amount in dollar. India import crude oil. From 1995 to 1996 there is again fluctuation in prices.
In 2012 the price was maximum and we import it in huge amount. The price of crude oil which we pay is continuously changing because we import it and huge amount is vested on import duty and excise duty. The price of crude oil rises with inflation. As the dollar rate rises India has to pay more and more.
PRICE OF DOLLAR Price of dollar in terms of rupees is given above. In 1991 1$=Rs 18.11. In 1997 value of one dollar was Rs= 39.15. So we can say that during exports of goods the in 1997 we will be able to fetch more amount of money. The value of dollar is ever increasing since. There was a fall as compared to INR in 2007 i.e., Rs 39.33. At that time the values of money was declined. India wanted to import goods when the currency is less. In a sense that the goods are bought at reasonable prices.
There is a continuous increase in the price of dollar with respect to Indian rupee. Because US has trade relations with almost all the countries. They have huge amount of exports. India contributes less than 1% in trade exchange. This is the main reason why India is not much affected by the inflation in other European countries.
YEAR INFLATION PRICE OF DOLLAR (IN RUPEES) 1991 12.1%
18.11
1992 13.74%
25.79
1993 10.76%
28.95
1994 8.35%
31.44
1995 12.60%
34.92
1996 7.99%
35.83
1997 4.61%
39.15
1998 4.40%
42.58
1999 5.95%
43.45
2000 3.27%
46.88
2001 7.16%
47.93
2002 3.60%
48.23
2003 3.41%
45.66
2004 5.46%
44
2005 6.48%
46.11
2006 4.38%
44.49
2007 5.42%
39.33
2008 4.75%
49.82
2009 12.40%
46.29
2010 10.20%
45.09
2011 9.25%
51.1
2012 9.46%
54.47
Sources: www.economywatch.com
www.slideshare.net
CONCLUSION Inflation at high rate is not good. It affects the society at large scale.
If it is not controlled it has severe effects.
There are various measures to control inflation.
Inflation also affects the price of gold, dollar and crude oil.
During inflation the purchasing power of economy decreases.
Government has to take actions for controlling it.

Disadvantages and advantages of using QALYs in economic evaluation

Why does the United Kingdom have a national health service (NHS) and not a national food service? (800 words maximum). The National Health Service is built on the Bentham’s concept of utilitarianism of maximising ‘utility’ for greatest number (Lockwood,1988), enabling risk sharing across the entire population by confronting moral hazard and adverse selection. This need for utilitarianism can be linked to the microeconomic theory of supply and demand (Frank, 1994). Supply and demand underlies the allocation of limited resources or commodities used to achieve maximum health output. In this situation, “demand” refers to both willingness and ability to pay for health, and “supply” is the willingness and ability of potential sellers to produce and sell a particular commodity (Schafermeyer, 2000). Consumers, subject to their individual income constraints, maximise their individual utility through their purchasing of particular goods; health in this respect has both aspects of an investment good and consumption good.
The demand for health care services is very different to that of food. Health, unlike other resources, cannot be traded over time. It is a derived demand, in which consumers have a demand for health but cannot directly purchase it (Ringel, 2002). Like a capital good, health is capable of depreciation over time and as such; its demand is a time-dependent variable, which changes with exogenous and endogenous factors. Therefore, one could suggest there is unlimited health care demand that will always exceed limited supply due to the overall burden of ill health being impossible to anticipate. As such, health care in an important determinant of health but the demand for it is often unpredictable (timing, frequency, intensity, costs) and therefore, expensive.
Markets favour consumers with purchasing power. The food industry is a free market, dictated by consumer choice and demand, the emergence of new suppliers and the exit of under performing suppliers. Within the food market, elasticity is driven by the premise of consumer sovereignty, in which consumers have information about every product, therefore can choose an enormous range of options and exactly how much of any given thing we want to purchase. In a free market, no one producer can manipulate the market price of a product. Producers are incentivised to satisfy consumer wants and produce efficiently to gain maximum profit. Economic theory suggests a free market promotes the optimal outcome for consumers and providers. As such, equilibrium in price and quantity are eventually met. While markets may be efficient, the allocation of resources by markets may not result in equity
Do we have purchasing power as consumers in health care? In simple terms, we can predict when we will be hungry but we cannot predict when we are going to be ill and we know how to treat hunger but not all the eventualities of ill health. It is likely that without a national insurance system like the NHS an oligopolistic market would exist as there would be a few dominant sellers capable of influencing the overall market price of a commodity due to great market power.The universal NHS exists to meet this variable demand and ensure equity by providing a comprehensive, high quality service available on the basis of clinical need and not ability to pay; ensuring individuals aren’t victims of the market forces that could be derived from a market in which access to services is driven by the law of demand. It exists under a command market with no competition ensuring ‘horizontal’ equity in distribution. In health care, consumers don’t have the necessary information for driving a perfect market. To have perfect information they would need to know their current health status, prospective health status, available treatments and the cost of treatments. We rely upon doctors acting as agents (principal-agent relationship) or ‘gatekeepers’ to assist in our decision making and to purchase healthcare based on their knowledge. In the Grossman Model based on a human capital approach to health (Grossman 1972; Grossman 2000) demand for health care is derived from the demand for health. In this model, it is recognised that consumers have imperfect information about their health and therefore may be subject to adverse selection problems. For a perfect market to exist within Health Care Services there is a need for prefect competition. For perfect competition to exist, asymmetry of information between consumers and producers should not exist, there should be uniformity in product and producers should be able to freely enter and exit the market. Rational purchasing decisions are often difficult if not impossible to the non-medical population. Consumers are often unable to make an informed decision regarding whether treatment is required and, if so, which therapies are most effective. Markets in health care are not efficient, mainly because consumers do not have good information.
In making resource decisions, allocation efficiency is also important. The concept of allocative efficiency takes account the efficiency with which outcomes are distributed among the community.
(WORDS: 789)
Question 2
What are the disadvantages and advantages of using quality adjusted life years (QALYs) in economic evaluation? (800 words maximum)
Within the National Health Service, according to Morris, Devlin and Parkin (2007), economic evaluation is used for the following reasons:
To maximise the benefits from health care spending.
To overcome regional variations in access.
To contain costs and manage demand.
To provide bargaining power with suppliers of health care products.
QALYs are a type of health status index, based on population-level information that measure health gains (Spencer, 2003 p.1) to allow for economic evaluation of different health interventions. A single QALY is the arithmetic product of life expectancy, weighted by a measure of the quality (utility) of the remaining life-years to reach a single index value (Prieto and Sacristán, 2003). The utility value is 0 for ‘dead’ and values one year of perfect-health life expectancy to be equal to one. These values are derived from scales, namely, the rating scale; time trade-off; or standard gamble. Each is subject to forms of bias. The QALY model offers consistency and limits budgetary waste, allowing for the greatest good to be achieved for the greatest number, so called ‘distributive justice.’ It also allows for direct comparison of interventions in a common currency regardless of clinical discipline. This is because the cost per QALY does not confer the price of treatment but the price of the outcome that results, may that be in years or quality gained or lost. Phillips and Thompson (2001) summarise this as an expensive treatment may have a low cost per QALY if it brings significant benefit to patients; likewise, a cheaper treatment may have a high cost per QALY if the degree of benefit is relatively low. This means that QALYs are very useful to use in priority setting.
There are however specific criticisms held as to the generalisability of this model, the lack of consideration for baseline health status and whether QALYs perpetuates the issue of health inequalities (Wagstaff, 2002). The use of QALYs implicitly assumes that there are no other objectives to health care than health maximization. QALYs are considerably crude measurements, leaving vulnerable the question what exactly constituted the ‘quality’ for which life years are adjusted. The utility measurement instruments each hold inherent bias as they are subjective aggregation of values. Individuals do not place the same value on each year of life. As such, the QALY model is inherently flawed as a health state utility of 0.6 is the same as three extra years of life at a health state utility of 0.2. As such, concerns have been expressed about the appropriateness of using QALYs calculations to inform resource allocation decisions (Dolan et al, 2008) as they are attempting to make subjective concepts explicit numerically when there really is no consensus, leaving ambiguity in assessing overall improvement or detriment in health. Criticism has been expressed about the discriminatory aspects of the QALY model. The model favours those with more “treatable conditions and those with greater potentials for health- be it in terms of functioning or longevity” (Nord et al, 2009).
Question 3
Outline the main methods to remunerate general practitioners (GPs) in the United Kingdom. (300 words maximum)
GPs are self-employed providers, which under the 2004 GMC negotiated contract are paid by mixed payment remuneration, consisting of salary based on weighted capitation, fixed allowances, QOF and fee for service. Individual GP practices are allotted a practice income under the contract, from which expenses and staffing costs are funded. This payment, representing the largest part of their income, is a capitation fee per enrolled patient adjusted for age, gender, morbidity and mortality, with additional fixed allowances for maintaining particular services. GPs working in underserved geographic areas receive additional payments. Distribution to individual GPs within a practice is dependent upon seniority, practice efficiency and maintenance of operational costs through cost containment. GPs can also receive additional payments based on the quality of services provided in designated areas such as child health, maternity, family planning, and chronic diseases as part of a quality enhancing framework (DH, 2004). The Quality and Outcomes Framework (QOF) is a voluntary, evidence-based framework spanning four domains: clinical, organisational, patient experience and additional services (DH, 2003). GPs are challenge to meet a range of evidence-based indicators within these domains from which they can accumulate points based on the breadth and depth of quality. As a result, payments are awarded according to the level of achievement. Practices receive about £125 per point for an average sized practice with a maximum of 1000 points available to them. QOF is often revised to reflect changing population priorities, clinical advancements and best evidence to remain a pragmatic funding model. Thirdly, practices can enter into so called Enhanced Service agreements, based on the ‘fee for service’ model. In Enhanced Service agreements, payments are awarded for meeting targeted requirements, such as flu and childhood immunisations and providing other specific services.
ii) Compare and contrast 2 of these methods outlining advantages and disadvantages of each. (300 words maximum)
Different financial incentives given to GPs might affect their behaviour and treatments plans for individual patients. “Fees for service” compensation is awarded based on a service being given to an individual patient. Care is clearly linked to payment and each service that is delivered has a specific payment rate. It has been argued that such a system of compensation induces GPs to put quantity, over quality of care in a bid to get increasing numbers of patients through their practice door and allows for unnecessary, potentially more lucrative, treatments to be performed at a financial benefit to the GP.
This compares quite dramatically to the capitation system, which remunerates practices based on the population demography, regardless of the health status of the population. This means GPs have better budgeting capabilities, as each payment is fixed regardless of case mix meaning it is an equitable system for all patients. Capitation removes the need for GPs to see a high volume of patients within an allotted time frame but places incentives upon general practioners to enrol large numbers within their practice. As such, capitation comes with the added risk of the potential to have a difficult case-mix due to increased numbers and allows for ‘cream skimming’ to take place in which GPs exercise the potential to choose patients that are easier to care for, leading to health inequalities in certain demographics, i.e. the elderly.
Outline the equity implication of patient co-payments for primary care services. (300 words maximum)
Equity is an ethical concept built on the principle of distributive justice. In health care, it is considered to be “the absence of systematic disparities in health between groups with different levels of underlying social advantage/ disadvantage” (Braveman, 2003, p1). Co-payments are flat fees or means tested payments, based on the willingness to pay model that a patient pays for a named health care service, such as a GP visit, dental treatment or prescription. They transfer the pooled risk to the individual, in both monetary terms and opportunity costs, which in turn means, the responsibility for understanding the cost of illness and making a decision of cost-benefit of a care pathway lies with the patient. Basing health care treatments on being able to pay is contentious as co-payments have the potential to create a barrier to access and widen the equality gap by discouraging or restricting people from seeking important treatments or forcing individuals from lower socio-economic groups into making decisions about their health care based on price not their need. Equity assumes equal utilisation (use) for equal need, if individuals must make value judgements based on their income there is likely to be a disproportionate relationship between uptake in lower socio-economic groups to more affluent groups. Co-payments also encourage ill use of treatment, for example, incorrect conformance to medication regimens.
Braveman P

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