INFLATION

The Islamia University Of Bahawalpur

BBS (M-1)2nd

Group Members

Mehnaz Akhtar 17Umair Khalil42

Mehreen Sohail 44Sidra Habib 167Shazia Ramzan 31Ayesha Shaheen06

Waseem Gill26

IntroductionDefinitionMethods to

measure Inflation

Types of Inflation

Causes of Inflation

Effects of Inflation

Measure to control Inflation

Inflation rateConclusion

“ Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair ”

Inflation means a persistent increase in the level of

consumers prices or a persistent decline in thepurchasing power of money, caused by an

increase in available currency and credit beyond the

proportion of available goods and services.

Meaning

In Economics, Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.

Definition:

Consumer Price Index (CPI)

Wholesale Price Index (WPI)

Methods to Measure Inflation.

Current CPI/WPI – Last Calculated CPI/WPI

Last Calculated CPI/WPI

InflationRate

=

150 - 140 140

InflationRate = 100

100

= 7.12%

Umair KhalilRoll No.

42

Types Of Inflation

War Time Inflation

A) On the basis of the period of occurrence

Peace Time Inflation

1. Creeping Inflation.

2. Walking Inflation.

3. Running Inflation.

4. Galloping or Hyper Inflation.

B) On the basis of the rise in prices

C) Open and Repressed inflation

Open Inflation : Government takes no steps to control

price rice

Repressed Inflation : Price level check by Government

Mehreen SohailRoll No.

44

Comprehensive : All commodities available in the economy witness price

rise

Sporadic Inflation : Only a few commodities register a rise in price

D) Comprehensive and Sporadic Inflation

Partial : Before the stage of full employment

Full : After the stage of full employment is reached

E) Partial and Full Inflation

Demand Pull : Increase in the aggregate demand for goods and

services

Cost Push : a. an increase in wages b. an increase in the profit margin

F) Demand pull and cost push inflation

Sidra HabibRoll No.

167

Inflation is a persistent and appreciable rise in general level or average of price -Acc to ACKLEY

Causes of inflation

1. DEMAND side factors: Aggregate demand is greater than

aggregate supply

2. SUPPLY side factors:Aggregate supply fall short of

aggregate demand

Types of causes

1. Rise in Public expenditure - expenditure incurred by govt. - Aggregate demand is greater than aggregate supply

Demand side factors

2. Deficit financing - Expenditure is more than Income

CAUSES

Irving fisher’s quantity of money explains- “Increase in money supply with proportionate increase in output lead to rise in PRICE and fall in money VALUE”

Increase in Money supply

It is unearned income by public servants Excess demand lead to inflation

BLACK MARKET & CURRUPTION

Growth in population Growth in private expenditure Increase in ExportMoney reduction in direct taxes

OTHER FACTORS

Industrial disputes

Natural calamities

Artificial scarcity

Increase in export

SUPPLY SIDE FACTORS CAUSING INFLATION

Global factors [impact high oil price]

Fluctuating agricultural growth

Neglecting the production of consumer goods

Shazia RamzanRoll No.

31

Effects Of Inflation

Effects of inflation

Inflationary noise Effect on economic growth Effect on consumption and

economic welfare

Economic Effect of inflation

• Distribution of income.

• Distribution of wealth

• Different sector of society.

Wage earner Producer Fixed income people Borrower & lender Government Employment

Economic Effect of inflation

Ayesha ShaheenRoll No.

06

MEASURES TO CONTROL INFLATION

MONTARY MEASURES

FISCAL MEASURES

OTHER MEASURES

TYPES OF MEASURES TO CONTROL INFLATION

A) CREDIT CONTROL

B) DEMONETIZATION

C) ISSUE OF NEW CURRENCY

MONATARY MEASURES

A) REDUCTION IN UNNECESSARY EXPENDITURE

B) INCREASE IN TAXES

C) INCREASE IN SAVING

D) SURPLUS BUDGETS

E) PUBLIC DEBT

FISCAL MEASURES

A) PRICE AND WAGE CONTROL

B) INDEXATION

C) TO INCREASE IN PRODUCTION

D) RATIONING

OTHER MEASURES

Waseem GillRoll No.

26

Currency of different countries due to inflation

Inflation rate 89.7 %

German paper markOCT 1923Inflation rate 20.87%

r