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Inflation And Types of Inflation

This power point will give you the basic idea about inflation and how it occurs and remedies to control it........

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Inflation And Types of Inflation

  1. 1. Inflation ,Its Effects ,And Their Remedies. Mumtaz Ali Panhwar 12ME69
  2. 2. • Introduction • Definitions • Types of Inflation • Causes Of Inflation • Effects Of Inflation • Remedies to control Inflation • References
  3. 3. INFLATION •Inflation is defined as a sustained increase in the price level or a fall in the value of money. •Inflation is a rise in general level of prices of goods and services in the country over a period of time.
  4. 4. • In a broad sense , inflation is that state in which the prices of goods and services rise on the one hand and value of the money falls on the other . •As the cost of goods and services increase , the value of a currency declines because you won’t be able to purchase as much with that currency as you could have last month or year.
  5. 5. Definition of Inflation according to few Economists. MEYER: “ An increase in the prices that occurs after full employment has been attained.” CROWTHER: “ In the state of inflation, the prices are rising , i.e., the value of money is falling.”
  6. 6. Coulburn: “ In inflation , too much money chases too few goods.”
  7. 7. Explanation of above definitions of Inflation. All the above definitions are showing that inflation is a continuous process and they also show that inflation is a condition in which prices rise and money value decreases. Due to inflation , the real value of money decreases , i.e., the purchasing power decreases
  8. 8. Other Terms Related To Inflation Dis-inflation: The reduction of rate of inflation is termed as Disinflation. Stagflation: High inflation combined with economic stagnation and unemployment.
  9. 9. Hyperinflation: An out of control inflationary spiral is known as Hyperinflation. DISINFLATION STAGFLATION HYPERINFLATION
  10. 10. Types Of Inflation 1. Demand Pull Inflation 2. Cost Push Inflation
  11. 11. Demand Pull Inflation •The demand for goods and services increases and production remains same or does not increase as fast. •The excess demand results in prices being pulled up.
  12. 12. •The demand pull inflation occurs when total demand for goods and services exceeds the total supply. •This type of inflation happens when there is an inflationary gap. Demand Pull Inflation
  13. 13. Cost Push Inflation • The cost push inflation is caused by an increase in the cost of production. • Increased costs push up the price level.
  14. 14. Causes of Inflation: •Population explosion. •Political Instability. •Imported goods. •Increase in wages and salaries. •Climatic factors.
  15. 15. Causes of Inflation: • Oil prices. • Corruption. • Slow agricultural development • Slow Industrial growth.
  16. 16. Effects Of Inflation: • Un employment • Decreasing the purchasing power • Decrease in stock. • Exports decline. • Breakdown of monetary system. • Investment fall.
  17. 17. Remedies to control Inflation: Inflation rate is increasing day by day. Following are the some remedies to control this problem… 1. Increase the supply of essential items . 2. Tight monetary policy. 3. Reduce government expenditures……
  18. 18. Remedies to control Inflation: 4. Reduce public borrowing by government. 5. Control deficit financing . 6. Provision of subsidies. 7. Explore new energy resources . such as : solar energy , wind energy, and construction of new dams, etc…
  19. 19. 8. Population control Remedies to control Inflation:
  20. 20. Measures to control Inflation: There are broadly three ways of controlling inflation in an economy. 1. Monetary Measures. 2. Fiscal Measures. 3. Direct or Other Measures.
  21. 21. 1. Monetary Measures. • Most central banks use high interest rates as the traditional way to fight or prevent inflation. • Decrease money supply. • Decrease availability of credit from banks. • Decrease currency control. Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary policy is adopted by central bank of a country.
  22. 22. 2. Fiscal Measures. Fiscal policy is the deliberate change in either government spending or taxes, to simulate or slow down the economy. • Increase direct taxes. • Increase indirect taxes. • Reduce government spending . • Increase in savings • Surplus budgets
  23. 23. 3. Direct or Other measures. It means the step of government like rationing of goods and freezing of prices and wages. The government can also increase voluntary savings of people by giving them various incentives. • To Increase Production • Rational Wage Policy • Price Control • Control of smuggling • Industrial peace • Control of money supply • No deficit financing • Population control • Simple living
  24. 24. Situation in Pakistan: Today, inflation is one of the serious problems faced by Pakistan. Rate of inflation in Pakistan is very high. According to economic survey 2009- 10, its rate is 13.3 %, According to ESP 2011-12, rate of inflation (CPI) is 10.8%. Pakistan has an average of 11.6% inflation per year.
  25. 25. 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Inflation Rate Pakistan’s Inflation Rate (2002-12)
  26. 26. Comparison of Pakistan’s inflation rate With Bangladesh’s Inflation rate. 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 INFLATIONRATE YEARS Yearly Inflation Rate Pakistan Bangladesh
  27. 27. References http://en.wikipedia.org/wiki/Inflation http://ahsankhaneco.blogspot.com/2012/04/inflation-in- pakistan-its-types-causes.html http://en.wikipedia.org/wiki/Economy_of_Pakistan http://en.wikipedia.org/wiki/Inflation_in_Pakistan http://finance.gov.pk/survey/chapters_13/07-Inflation.pdf http://finance.gov.pk/survey/chapters_13/executive%20su mmary.pdf
  28. 28. The 'cost of living', more than money The price of death much too high Give me a coffin, cheap & funny, I'll blow it up with a sigh! By: David Stewart