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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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AnyAnyquestion???question???