Deflation Blessing or curse

Deflation is the state of decrease in the general price of any goods or services. It occurs in the economy due to the annual fall in the inflation rate less than 0%. It results in the increase in the purchasing power of general public. Due to inflation the real monetary value increase increasing the capacity of people to buy goods without increase in their real income. It is contrary to inflation, where the real money value increases. During the time of deflation the purcahsing power of people of low income or fixed income will increase rapidly where as the people with fluctuating income (business man) will suffer very much.

Now-a-days economists believe that in modern economy deflation causes decrease in the price of goods which leads to decrease in the production of goods(level of production). This results to the situation of decrease in the wage rate and decrease in the demand of labour. In short we can conclude that deflation is caused due to the decrease in the general price level resulting in the decrase of the production and decrease in the employment level in the labour market.

Some negative impact of deflation are

• Increase in crime
• Decrease in production
• Decrease in no of investors
• Decrease in production company
• Decrease in the level of employment int he general employment level
• Instability in the economy
• Discouragement prevails
  

A good example of the depretion is the great Depretion of USA (1929-1930) during which the level of employment and price of goods were so much decreased that many of the production companies had closed down resulting in the creation of unemployment increase upto 25% where as in other countries it reached about 33%, Price level of crop decreased upto 60%. As we can clearly seen the chart that unemployment how increased and reached above 20% during the time of deflation and after the state of deflation how unemployment decreased up to 5%.

Indicator of economic development

There is misunderstanding among the economists over the indicators of economic development. Some of the economists have taken national product as the indicator of economic development. Some other economists have taken per capita income as the indicator of economic development. Likewise some other economists have taken economic welfare as the indicator of economic development. Various economists have taken material living standard index as the indicator of economic development. Economists of this thought have taken life-span, death rate, literacy rate as the bases. Similarly United Nations Development Program (UNDP) has developed Human Development Index (HDI) as the indicator of economic development. The indicators are income, literacy and life expectancy. The pointed of indicators lies between 0 and 1. The position upto 0.5 is the lower class of human development. From 0.5 to 0.8 is the middle class and above 0.8 is the upper class. The base of economic development indicators are as follows.
1. Per-capita income criteria
Some economists have taken economic development indicator on the basis of the increase in per-capita income. According to the classification given by the United Nations Organization in 1989 AD. countries having per capita income less than 580 U. S dollars fall in the class of poor countries, countries having per capita income between 580 US dollars and 6,000 US dollars are in the middle class, and countries having per capita income more than 6,000 US dollars are in the class of rich countries. According to World Development Report 2009, per capita income of Nepal is 340 US dollars. Such indicator makes the comparative study of different countries easy. On the basis of per capita income the economic growth rate of any country can be found out. The increase in per capita income of any country shows the increase in economic growth rate of the country. The high per-capita income are given in the table below:
Table
Per capita income of Seven Rich Countries of the world.

S.No Country Per-capital income (in US dollar)
1. Norway 76,450
2. Switzerland 59,880
3. Denmark 54,910
4. Ireland 48,140
5. Sweden 46,060
6. United States of America 46,040
7. Netherlands 45,820
Source: World Development Report 2009
Likewise per-capital income of south Asian countries is as follows:
Table
South Asian Countries and their Per-Capita Income

S.No Country Per-capital income (in US dollar)
1. Bangladesh 470
2. India 950
3. Nepal 340
4. Pakistan 870
5. Sri Lanka 1540
Source : World development report 2009
2. National income criteria
Some economists have taken increase in the real national income as the indicator of economic development because per-capita income also depends upon the national income. National income is related with the final goods and services produced in a country. According to this method the state of continuous increase in national income can be taken as economic development. This is specially applicable for the poor and middle class countries. Short-run increase in national income cannot be taken as economic development. Likewise increase in the national income as a result of increase in price of goods and services cannot be defined as economic development. The best way of calculating national income is the gross national product.
3. Physical quality of life index - PQLI
This is non-income indicator of economic development because this uses physical quality of life as the indicator. This method of measuring economic development is based on the following three things. They are:–
(a) Life expectancy
(b) Infant mortality
(c) Literacy.
The scale of all these things measured is between zero (0) and hundred (100) shows the lowest level and 100 shows the highest level. If in any country life expectancy measured is maximum, ie. 100 and the other two indicators are measured minimum i.e., zero then giving equal weightage to each indicator a competitive index is prepared from the average of all three. Likewise index of a country with high literacy rate will be 100. Countries having low life expectancy, low literacy rate and high infant mortality will have low index (ie. 0). If in any country PQLI is increasing then it indicates the increase in the physical quality of the life of people:
Increase in per-capita income does not necessarily indicate the increase in the facilities like healthy food, health, situation, education, etc. Therefore PQLI method is taken to be better indicator than per-capita income method.
4. Human development index - HDI
Human development index is new and modern indicator of economic development. This indicator was for the first time developed by United Nations Development Program (UNDP) in the year 1990 AD. This indicator is based on three things; They are as follows:
(a) Income for decent living
(b) Education
(e) Life expectancy.
As PQLI, HDI also divides all nations of the world in the scale of 0 to 1 on the basis of three objectives of development. In this method minimum of 0 and maximum of 1 value is given. This method has classified all nations of the world in three different classes. Low human development in from 0 to 0.50. Medium human development in from 0.51 to 0.79 and high human development is from 0.80 to 1.0. Since this method measures the relative level of human development, this focuses on life expectancy, education and physical choice. This takes per-capita income as an indicator the change in monetary value is adjusted in GNP. This is measured on the basis of the unofficial education and middle age of school going population. In this method on the basis of the development of skill of all the adults and infant mortality and the nutritious food they get. When all three indicators are included an important indicator of human HDI is measured development will be obtained. On the basis of this, human development index (HDI) of different countries is obtained. In addition to this on the basic of basis necessity criteria also economic development indicators can be obtained. In addition to these various indicators the following facts are also taken as the indicators of economic development.
(a) Equality improvement.
(b) Poverty alleviation
(c) Quality of life
(d) Capital formation
(e) Fulfillment of basic needs.
(f) Population growth rare
(g) Increase in employment opportunities.
(h) Decrease in dependence on agriculture
(i) Increase in entrepreneurship
(j) Utilisation of natural resources
(k) Increase in export of finished goods.
(l) Trade diversification
(m) Extension of infrastructures
(n) Extension of markets.
(o) Improvement in technology
(p) Urbanisation, Gender equality, Human rights, etc.

Characteristics of Developing countries

Developing or underdeveloped countries are those countries in which most of the citizens are compelled to live below poverty line. As a result of this problems in consumption arise in various time periods due to scarcity or shortages of goods and services. In such countries technical and monetary level will be of low quality. In such countries there will be no proper association between production, consumption and distribution. As a result of unemployment propensity to consume will be high resulting in low saving and low investment. In such countries available natural resources will not be utilized property or adequately. In view of these various reasons the per capita income of such countries will also be low.
Developing or underdeveloped economy is that economy in which there are low level of living, absolute poverty, low per capita income, low consumption level, poor health services, high death and birth rates and dependence on foreign countries. Despite having high possibilities of economic development such countries are in the group of underdeveloped countries. Low per capita income unequal distribution of national income, major section of the people dependent upon agriculture, inefficient administration, objectiveless political parties, lack of development in industries, lack of job oriented education, etc. are the characteristics of underdeveloped countries. On the basis of these various facts the characteristics of underdeveloped countries can be explained as follows:
1. Low per capita income
Per capita income in underdeveloped countries will be very low. As a result the living standard of the people of such countries will also be very low. People will have difficulty in consuming even daily necessity goods. People will not even get the minimum daily calories (2124 calories) required. This will have an adverse effect in their health. Countries like Burundi, Congo Dem. Rep., Liberia, Ethiopia etc. are the countries with very low income. The countries with very low per capita income in the world are as follows:
Table
World's Poor countries and their per-capita income

S.No Country Per-capital income (in US dollar)
1. Burundi 110
2. Congo. Dem. Rep. 140
3. Liberia 150
4. Ethiopia 220
5. Eritrea 230
6. Sierra Leone 260
7. Niger 280
Source : World development report 2009
2. Agro-based economy
Underdeveloped countries are mainly dependent on agriculture. Since large number of people of such countries live in rural areas they depend upon agriculture. Though dependent on agriculture, only a small part of national income will be contributed by agriculture. The main reason for this is the lack of opportunities for employment and lack of development in industrial sector. About 80% of people of Nepal are directly or indirectly dependent upon agriculture. But about 40% of the national income is contributed by the agricultural sector. But contrary to this in developed countries only minor section of the population will be dependent upon agriculture. Thus, main characteristic of underdeveloped countries is taken to be agro-based economy.
3. Unemployment problem
Unemployment problem is another main characteristic of underdeveloped countries. In such countries due to lack of trained human resources major fraction of the population remains unemployed. Therefore in such countries there will be problems like unemployment, semi-unemployment and seasonal unemployment. The main cause of unemployment is the lack of alternative employment opportunities in other sectors besides agriculture. Semi-unemployment and seasonal unemployment arises in agricultural sector. This is because in underdeveloped countries farmers remain unemployed for rest of the year after working for 3 or 4 months. Likewise in underdeveloped countries agriculture also depends upon season. Therefore if rainfall is on time and sufficient then farmers will have employment for some time only. But if effect of climate is adverse then farmers will be unemployed for even longer time. In underdeveloped countries there will be lack of alternative employment opportunities. Therefore large fraction of population will be unemployed.
4. Traditional techniques of production
In underdeveloped countries technology of production will be based on traditional techniques. Developed countries increase the level of production with the application of new and improved technology. But in underdeveloped countries goods are produced with old technology. As a result productivity of such countries will be very low. The main reason for this is lack of capital, lack of trained human resources, etc. In such countries due to high level of poverty there will be no development in financial institutions. Due to lack of financial institutions the people will not have the habit of saving and also due to high level of poverty their saving capacity will also be very low. Thus as a result of lack of capital investment, in how technology will not be possible. In such countries due to low level of investment the production will also be very low.
5. Unbalanced trade
In underdeveloped countries the balance in trade will always be unbalanced. This is because in such countries import will be more than export. As a result there will be unbalanced trade and balance of payments will also be unbalanced. Lack of capital, lack of facility in transportation and communication, lack of raw materials, lack of markets, etc. are the main causes for the unbalanced trade and imbalance in the balance of payments. Though some raw materials are available in such countries, instead of producing finished goods from those raw materials, the raw materials are exported. As a result income from trade will be low and such countries will be poor.
6. Lack of entrepreneurs
In underdeveloped countries due to various reasons there will be lack of entrepreneurs. Lack of capital, lack of technical knowledge, very limited markets etc. are the main reasons for the lack of entrepreneurs in underdeveloped countries. Due to these various reasons the businessmen are not interested in investing in such countries. In such countries due to excessive poverty also there will very few investors or entrepreneurs. In such countries there will also be lack of policies which motivate investment. In such countries there will be few industrialists only and they will exploit consumers by creating monopoly over various goods and services. This is because the main objective of such entrepreneurs is profit earning rather the economic development of the country.
7. Dualistic economy
In developing countries there will be a mixture of two types of economic system. One will be based on traditional system and the other one will be based on modern system. In such countries traditional economic system will be present in the rural sectors and the modern economic system will be practised in a few limited urban sectors. Thus, in rural areas there will be lack of infrastructures such as roads and transportation, schools and colleges, communication facilities, etc. In such sectors agricultural industries based on traditional system will be present. This will not make the economic system efficient and strong. On the other hand in urban areas there will be facilities of roads and transportation, modern schools and colleges, communication and modern facilities. In urban areas some modern industries and factories will also be established. So, due to dualistic economy the society will be divided into two different classes this will slow down the economic growth even more because rich people of rural areas will migrate towards urban areas having various modern facilities. As a result urban living will also be difficult.
8. High population growth rate
As compared to developed countries the population growth rate is very high in underdeveloped countries. The higher population growth is one of the main reasons for Nepal in being an underdeveloped country. According to the latest census of Nepal 2001 AD the population growth rate is 2.24 percent but population growth rate of developed countries is less than 1 percent.
9. Low utilization of natural resources
In underdeveloped countries natural resources are used partially or in very small quantity. In such countries the true facts about the availability of natural resources will not be known. The utilization of the available natural resources will also be very low. In such countries the various natural resources such as forest resources, water resources, minerals, etc. will be available in large quantity. But these natural resources will not be utilized properly for the long-run economic development. Despite the availability of natural resources in large quantity such countries will not be able to exploit those resources for the benefit of the country. For example, Nepal has the capacity of producing 83,000 mega watts of hydro-electricity, but the production of hydro-electricity is very low. Not even one percent has been produced.
10. Political instability
In underdeveloped countries there is always political instability. No elected government will be able to work for the full term. This is because in such countries major fraction of the population will be illiterate. Such people will have lack of political awareness. Leaders and party workers are motivated in getting different posts by various ways and use such posts as earning place. Due to lack of administrative ability administrative work will be unsystematic. Salary required for the fulfillment of the basic requirements will not be given to the office staff. As a result they will be engaged in earning through illegal means. As a result corruption will increase and political instability will be created.
11. Gender discrimination
In underdeveloped countries gender discrimination will be in intensive form. In such countries role of women will be negligible. There will be majority of males in every sector of employment. As a result women will be limited to only household works. Women don't have right in acquiring parental wealth and property. Literacy of females is also very low as compared to that of males. In rural areas females are even deprived from getting enough food. Thus in underdeveloped countries there will be a great discrimination between males and females.
12. Lack of development of infrastructure
In underdeveloped countries there will be lack of development of infrastructure. In such countries facilities of transportation and communication will not be expanded adequately. One a small fraction of the population of such countries will have access to hydro-electricity power. Expansion of banking and financial institutions will be inadequate. For this reason the farmers of the rural areas will have to depend upon high interest rates of landlords and money lenders. The farmers are even exploited by the people of such class. People have to travel on foot for weeks to go from one place to another. So, lack of development of infrastructures is also the major problem of the underdeveloped countries.

Defination of Economic development

Introduction
Economic development is a dynamic concept. Thus, economic prosperity of any country can be defined as the economic development. For this reason specially in developing countries economic development is related to economic prosperity. In general economic development is taken to be the development and expansion of material capital. But in modern times the development of social and human capital is also covered by taken economics development. Economic development is only a part of overall development. However, it includes every sector in one way or the other. Economic development affects social, political, technical, religious and cultural development.
Economic development has direct relation with the economic problems of underdeveloped countries. This is because economic development brings about an intensive change in the economic structure. This will increase the income as well as improve the life standard of the people. Therefore economic development is the positive and quantitative growth of the underdeveloped countries. This brings about change in technology, distribution and consumption. This alleviates poverty, increases national production, increases national income and per capita income and shows symptoms in the improvement of individual and social sectors.
According to Prof. Meier, "Economic development is the process where by the real per capital income of a country increases over a long period of time-subject to stipulations that the number of people below and absolute poverty line does not increase, and that the distribution of income does not become more unequal". Likewise according to W. Arther Lewis, "Economic development means the increase in per capita production."
As mentioned in the World Development Report 1991, "Economic development is defined as a suitable increase in living standard that encompass material consumption, education, health and environmental protection."
According to Gunar Mydral, "Development is away from underdevelopment or poverty."
So, economic development means the process of changing living style to modern ways of living. This type of change is also known as modernization. Thus, development is not only related to material wants of people, but it also looks upon the requirements for the improvement of the social status of the people. For this reason economic development refers not only to economic growth but also to the economic change in the social and cultural sectors. National product, national income, per capita income, consumption, improvement in the living standard of the people etc. of a country are taken to be the indicators of the economic development. Economic development can be the basis for the poverty alleviation or the reduction of un-employment and maximum employment of factors available in a country. Economic development herbs to distribute the national income equally among the various classes of the society along with the increase in material and social welfare. Economic development also helps in poverty alleviation along with improvement in technology, change in social structure and conservation of environment. Economic development also includes improvement in education and health, change in social concept, political stability, progressive legal system etc.