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01 What is INFLATION
02 Causes of inflation and its impacts
03 Consequences of inflation
04 Inflation impacts on economy
INFLATION
INFLATION
 “Inflation is the persistent increase in general
price level”
 Decrease in the purchasing price of money
 General increase in the price of goods and
services in an economy
INFLATION RATE
• Inflation rate is the percentage
increase of decrease in prices
during a specific period,
usually a month or period.
• It analyze the general price
level in percentage
Rate =
CPI 2 – CPI 1
CPI 1
X 100
CAUSES OF INFLATION
DEMAND PULL INFLATION:
its also called Price inflation.
When Aggregate demand
become more than Aggregate
supply in the economy.
 Cut in interest rate
 Higher wages
 Increased money supply
Demand pull inflation
CAUSES OF INFLATION
Cost push inflation
COST PUSH INFLATION/ Wage push inflation
When aggregate demand is same and there
is increase in cost of factors of production
and decrease supply of goods in the
economy.
 Increase in Cost of production or wages
 Increase in prices of goods
 higher indirect taxes
OTHER CAUSES OF INFLATION
 Increase in public spending
 Population growth
 Trade unions
 Imposition of indirect taxes
 Price rise in international market
 Government spending
Favorable impacts of inflation
 Higher profits
 Better investment returns
 Increase in production
 Better income
Unfavorable impacts of inflation
 Low purchasing power
 Inequality in income distribution
 Upsets the planning process
 Lenders face losses
 Negative impacts on exports income
OTHER EFFECTS OF INFLATION
CONSEQUENSES OF INFLATION
A
Lower savings D Resource allocation
B
Production
pattern
E Government
spending's
C
Irrationality of
consumption
F Black marketing
0
1
Price of goods
0
2
0
3
0
4
0
5
0
6
Standard
of living
Government
measures Erosion of
quality
Fiscal debt
Unequal
Wealth
HYPERINFLATION
• Hyperinflation is often defined as inflation that exceeds 50 percent
per month, which is just over 1 percent per day.
• Compounded over many months, this rate of inflation leads to very
large increases in the price level.
• An inflation rate of 50% per month implies a more than 100-fold
increase in the price level over a year and a more than 2-million-fold
increase over three years.
Inflationary factors in Pakistan
 Increase in money supply
 Non productive expenditure
 Corruption and black money
 Deficit financing
 Foreign remittances
 Foreign Aids
 Be wise when holding cash
 Invest in things that will serve you in
long time
 Be careful, when buying bonds
 Allocate your resources
 Domestic production should be
encouraged
 Development in various sectors
 Decrease unnecessary spending's
 Better strategic planning
 Allocation of resources

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(Inflation).pptx

  • 1. 01 What is INFLATION 02 Causes of inflation and its impacts 03 Consequences of inflation 04 Inflation impacts on economy
  • 3. INFLATION  “Inflation is the persistent increase in general price level”  Decrease in the purchasing price of money  General increase in the price of goods and services in an economy
  • 4. INFLATION RATE • Inflation rate is the percentage increase of decrease in prices during a specific period, usually a month or period. • It analyze the general price level in percentage Rate = CPI 2 – CPI 1 CPI 1 X 100
  • 5. CAUSES OF INFLATION DEMAND PULL INFLATION: its also called Price inflation. When Aggregate demand become more than Aggregate supply in the economy.  Cut in interest rate  Higher wages  Increased money supply Demand pull inflation
  • 6. CAUSES OF INFLATION Cost push inflation COST PUSH INFLATION/ Wage push inflation When aggregate demand is same and there is increase in cost of factors of production and decrease supply of goods in the economy.  Increase in Cost of production or wages  Increase in prices of goods  higher indirect taxes
  • 7. OTHER CAUSES OF INFLATION  Increase in public spending  Population growth  Trade unions  Imposition of indirect taxes  Price rise in international market  Government spending
  • 8. Favorable impacts of inflation  Higher profits  Better investment returns  Increase in production  Better income
  • 9. Unfavorable impacts of inflation  Low purchasing power  Inequality in income distribution  Upsets the planning process  Lenders face losses  Negative impacts on exports income
  • 10. OTHER EFFECTS OF INFLATION
  • 12. A Lower savings D Resource allocation B Production pattern E Government spending's C Irrationality of consumption F Black marketing
  • 13. 0 1 Price of goods 0 2 0 3 0 4 0 5 0 6 Standard of living Government measures Erosion of quality Fiscal debt Unequal Wealth
  • 14. HYPERINFLATION • Hyperinflation is often defined as inflation that exceeds 50 percent per month, which is just over 1 percent per day. • Compounded over many months, this rate of inflation leads to very large increases in the price level. • An inflation rate of 50% per month implies a more than 100-fold increase in the price level over a year and a more than 2-million-fold increase over three years.
  • 15. Inflationary factors in Pakistan  Increase in money supply  Non productive expenditure  Corruption and black money  Deficit financing  Foreign remittances  Foreign Aids
  • 16.  Be wise when holding cash  Invest in things that will serve you in long time  Be careful, when buying bonds  Allocate your resources
  • 17.  Domestic production should be encouraged  Development in various sectors  Decrease unnecessary spending's  Better strategic planning  Allocation of resources