Recently, the term “Dosa Economics” was making news. Which of the following best defines the same?
The term was coined by RBI governor Raghuram Govind Rajan. He explain his point, with an imaginary example of a pensioner with a savings of Rs 1 lakh who earns an interest rate of 10 per cent and wants to buy dosas that cost Rs 50 a piece. The RBI governor assumes inflation to be 10 per cent. “He could buy 2,000 dosas with the money today, but he wants more by investing. At 10 per cent interest, he gets Rs 10,000 after one year plus his principal,” Rajan argued. With dosa prices going up by 10 per cent to Rs 55, he can buy 182 dosas approximately with the Rs 10,000 interest. However, with his principle amount the pensioner can now buy 1818 dosas. Thus, stateing that that low deposit rate coupled with low inflation is better than high rates with high prices.
This question is a part of GKToday's Integrated IAS General Studies Module