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INTRODUCTIONINTRODUCTION

NAME:

MUSTANSER SHAHID

HASSAN FAKHIR

TOPIC:

INFLATION

DATE:

02082010


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CONTENTSCONTENTS

y Inflation

y Inflation means

y Causes of inflation

y

Types of Inflationy Measurement of inflation

y Trend in overall CPI

y Inflation trend in Asia

y Inflation in Pakistan

y Effect of inflationy Economic cost of inflation

y Social cost of inflation

y Controlling inflation

y Conclusion


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INFLATIONINFLATION

y Rise in the general level of prices ofgoods and services in an economy over

a period of time.


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INFLATION MEANSINFLATION MEANS

y Inflation means a persistent increase in thelevel of consumers prices or a persistentdecline in the purchasing power of money,

caused by an increasein available currency and credit beyond theproportion of available goods and services


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CAUSES OFCAUSES OF

INFLATIONINFLATIONy COST PUSH INFLATION

Cost of production prices

y

DEMAND-PULL INFLATION Aggregate demand prices

y INCREASE IN MONEYSUPPLY

Rate of interest value of money


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CAUSES OF INFLATIONCAUSES OF INFLATION

y CURRUPTION

y Growth in population

y Growth in private expenditure

y Increase in Export

y Money reduction in

direct taxes


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TYPE OF INFLATIONTYPE OF INFLATION

y Food inflation

y Hyper inflation

y Stag inflation


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MEASUREMENT OFMEASUREMENT OF

INFLATIONINFLATIONy Inflation is calculated byCPI.

Index no=(Px/Po)100

y Inflation Rate={CPI(current year)-CPI(base year)/CPI(base year)}100

Px=price of current

yearPo=price of baseyear


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INFLATION TREND ININFLATION TREND IN

ASIAASIA


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INFLATION ININFLATION IN

PAKISTANPAKISTANYear

Inflation

rate

(consumer

prices) (%)

2000 6

2001 5.2

2002 4

2003 3.9

2004 2.9

2005 4.8

2006 9.1

2007 7.9

2008 7.6

2009 20.3


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EFFECT OF INFLATIONEFFECT OF INFLATION

y Inflationary noise

y Effect on economic growth

y Effect on consumption and economicwelfare


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ECONOMIC COST OFECONOMIC COST OF

INFLATIONINFLATIONEconomiccost

Unemployment

(long run) poverty

Cost of production

GDP (if jumping inflation)


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SOCIAL COST OF INFLATIONSOCIAL COST OF INFLATION

y Crime rate

y Depression

y Mental diseases

y Uncertainty


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CONTROLLING INFLATIONCONTROLLING INFLATION

y Monetary policy

y F

ixed exchange rate

y Gold standard

yWage and price controls

y Cost-of-living allowance


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CONCLUSIONCONCLUSION

Reduce Expected Inflation

y Improve Policy credibility

y Adopt Inflation targeting

Reduce Inflation

y Improve monetary and fiscal policiescoordination

y Set short term targets

y Inflation and

y Growth


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CONCLUSIONCONCLUSION

Choice of Appropriate Monetary PolicyInstrument

y Monetary policy instrument

y Intermediate TargetsFiscalAuthorities set target

y Public Debt level

y Budget Deficit

y Bank borrowingStrengthen regulatory bodies to breakdown monopoly elements and otherarrangements hindering prices t o adjust


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