Food For Thought: Incremental Understanding

I accept Saurabh that the ultimate effect of this valuing up of the rupee in totalitarian would be inflation and nothing else ,
I get back to my previous view that the effect on GDP would be short term & in the long run everything production level comes back to the previous value.

However I stand by my statement that there would be a kind of utilitarian effect in the form that some wealth would be redistributed from the rich to the poor. The explanation is provided by taking a look at the classical Long Run Aggregate Supply Curve (LRAS). Whatever is shown in the figure is nothing new. I am only going to take a little help from the graph in explaining the phenomenon.
Initially there is an equilibrium and natural level of production is being met. When the rupee is valued up, as I said before people in the short term would not mind spending a little more. (Explanations provided in the previous blogs). This would increase the income of certain people who in turn would demand more and thus Aggregate Demand (AD0 to ADf) Curve would go up. Wages being sticky Short Run Supply Curve comes into the picture: resulting Y (production level) increase to Y*. Hence increase in GDP. But soon wages increase due to increase in price to the intermediate level Pi and supply curve goes up to SRASf finally everything settles down and a higher price level is reached Pf while production comes back to the level Y. Thus ultimate effect is there is no increase in GDP. However inflation happens.
Though I still hold:
1) There would be a redistribution of wealth.
2) Short term recession, consumer sentiment can be overcome by this phenomenon.
Then again why should a government take this ultimate step when recessionary cycles have become so short term in nature.

Food For Thought: Question From Economics II

Remember the last food for thought that I provided. The one where I had tried to seek if there would be an indirect positive effect on the national economy: GDP if the local currency is valued up => Food for thought I.
It was argued and even I was of the belief that the effects whatever would be very short term in nature. If there is a positive effect on the GDP, it would be short term & over the years everything would normalize and move toward natural or long term output value i.e. in the long run there won't be any effect on the production/consumption of the country.
Now take this: Recently I thought that the effect can actually be long term. In fact such an effort can actually help in more equitable form of redistributing money in the economy. The thought came to my mind when I went to a place to get some of documents photocopied. That person charged me 0.50 cents for each page of photocopy. Pretty reasonable isn't it. Wait convert that to rupees!! 7 RS per page of xerox. This is exactly what would happen if the rupee is valued up. Small petty jobs which are valued low cannot be priced lower than a certain limit. And hence the cost of these jobs would increase. Well this cost is actually increasing the wealth of the people who perform such jobs. Their spending power increases & wealth is actually redistributed from the wealthier to these people.
Again budding/prospecting economists What is your take on this???

Just a few updates: And an informal invite.

Life has been a mixed bag for quite some time now. Looking back I have not made a single post in February. Naturally for those of you who are not in touch with me would wonder the reason for the slumber. Well the beginning of February was spent in planning one more trip to India. The middle of the month was spent in India & the last few days of the month recollecting the fond memories of the trip & also fighting a variety of virus that affected the entire value chain of my living system. I had cold, I had fever & I had an upset stomach (See I am talking like a consultant as well: Value Chain!!!). The reason I started the blog stating my life has been a mixed bag is because of the fact that right now I have no clue where my career at this moment is heading. Sometimes I feel that the entire MBA has been a waste just going by the fact that I hardly use the skills that I developed in my two years at IIM Calcutta. I feel sad sometimes hopeless that I am losing it: my skills in finance, statistics & economics. Would I be ever able to utilize those skills which I had always thought were among the best.
This hopeless situation is somehow made beautiful by the variable that came into my happiness function sometime back. The fond memories of the last India trip is centered around the time I spent with her. Previously I had written a blog on Childhood love. It is true that childhood loves are special but I am so happy that I had to spend such a long time to ultimately find her & find the best who could ever come to my life. I use the world of blog to publicly announce her arrival. Many of you who are in touch with me, already know, for the rest this is the official announcement. Previously I had thought I would take some more time before settling. But now I see that as pointless. Even our parents thought so. And so dear friends this is an informal invitation to the ceremony that is going to take place in August 6th tentatively. Please be there & wish us the best for the journey ahead.

PS: The date stands corrected and it is going to be 2nd August