Answer / rahul

it is totally depend on the mentality of the people because
if inflation is high,result is that price is high of the
commedities so people think about the future so they start
to invest thier money and save expenses. Result is that
lack of the liquidity in market and if there is no proper
liquidation in market recession is high.

Answer / s balasubramanian

When the inflation is high, prices go up and money value is
depreciated. What paid earlier for which you have to pay
more for getting the commodities. Purchasing power of
people is coming down, which in turn reduced demand.

Due to reduced demand Industry cannot use its full capacity
and with less production recession starts. With onset of
recession, again liquidity in the market is tightened.

It is all chain of events. If liquidity is good, people
will mind for paying more. Example is Real estate boom
which we witnessed earlier. With high inflation and
recession, money circulation is reduced and people are not
able to commit for long term.

That is the main reason, RBI has injected money into the
market by reducing the interest rates and also cutting down
the CRR etc.

Answer / giri

Inflation is caused by two reasons :-
1) Demand Pull Inflation
2) Cost Push Inflation

When cost push inflation occurs then the cost of the
commodoties rised because of the increase in the price of
the raw materials.

Due to this the people of the country has to pay more for
the same commodity than what they were paying. Due to this
they have to decrease the consumption of the other services
like hotels, airlines etc. Which causes service industries
to suffer from the losses because of the low demand of
their services.

Companies layoff the workers from their jobs because of the
less demand of their services and even manufacturing
companies produces less products because of their less
consumption and the result of this lead to recession.

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