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DOSA ECONOMICS

Dosa Economics


During his three year tenure as the governor of RBI, Dr. Raghu Ram Rajan focused on lower inflation over higher interest rate.

Rajan theory famously known as DOSANOMICS. He explained the concept with the use of interest in pension fund with relation to increase in general price level.

If a pension has savings of rs. 100000 and the cost of dosa is rs. 50 at the time, he can buy 2000 dosas with that money.

As a rational being a pensioner wants to invest for a period of one year to make extra more sum.

Lets look at scenario:

Inflation: 10%                   Interest: 10%

At this rate, pensioner will get rs. 10000 as interest after a year in savings. But, cost of dosa is now at rs. 55. He can only buy 182 dosas with earned interest.

Again,

Inflation: 5.5%                Interest: 8%

At this rate, pensioner will get rs. 8,000 as interest after a year in saving. Cost of dosa is now rs. 52.75 as influenced by inflation. Now, with interest amount he can only buy 152 dosas approximately.

Now, look them with whole sum

Case I
Principle  plus Interest = 110000
Dosa adjusted price = rs. 55
Total dosa = 2000

Case II
Principle plus Interest = 108000
Dosa adjusted price = rs. 52.75
Total dosa = 2048

Hence Case II brought, Net gain = 2048 - 2000 = 48 dosas

Hence, low inflation over higher interest rate is much better idea any least developed or developing economics  monetary policy can go with.



(Note: The details offered above in written is not owned by author, it is offered in this blog from various sites, blogs and researches)






HAPPY READING !

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