PB202 MACROECONOMICS

MACROECONOMICPROBLEMS

SIRVIA BINTI LADJA ( 10DIB 11F2028 )

MOHD FAZRUL BIN ISMAIL ( 10DIB11F2014 )

NURUL SAIYIDAH BT MOHD ISA ( 10DIB11F2008 )

FATIN AMANI MUMTAZ BT MUHAMAD YUSOF ( 10 DIB11F2059)

GROUP 6

INFLATIONDEFINITION

MEASURES OF INFLATION

CAUSES OF INFLATION

EFFECTS OF INFLATION

MEASURES TO CONTROL INFLATION

DEFINITION Inflation can be defined as a continuous increase in the general price level of goods and services in the economy

Deflation refer to a decrease in the general price level of goods and services in the economy.

VARIOUS DEGREES OF INFLATION

Creeping inflation

Mild inflation

Hyperinflation

CALCULATION OF INFLATION

Inflation rate= CPI this year - CPI previous year CPI previous year

EXAMPLE : calculate the rate of inflation for the year 2011

X 100

YEAR CONSUMER PRICE INDEX (CPI )

2010 1222011 135

C A U S E S O F I N F L AT I O N

Demand - pull inflation

Demand –pull inflation occurs when aggregate demand (AD) exceeds the aggregate supply (AS).

It is caused by a rise in AD which may be due to rise in consumer demand, or an increase in the government expenditure, or a rise in investment by firm, or an Increase in demand for the country’s export by people in foreign countries or a combination of the four.

Cost-push Inflation

Cost-push inflation refers to an increase in the general price level associated with an increase in the cost of production.

In other words, Inflation occurs due to the increase in the cost or supply prices of goods caused by an increase in the cost p inputs.

Wage-push inflation

wage-push inflation occurs due to an increase in the wage level which will lead to an increase in the cost of production and the output price.

Profit-push inflation

Profit-push inflation occurs wen certain producers or monopolists stock up on goods and create an artifical shortage which will increase the price on these goods, thereby giving them higher profits.

Import-push inflation Import-push inflation occurs when the prices of imported raw materials or finished good increase.This may due to the fluctuation of the foreign exchange rate

MEASURES TO CONTROL INFLATION

MONETARY POLICY

Moneytary policy which consist of controlling the supply of money by central bank is enford by using the different moneytary instrument aimed at reducing the supply of money.

Open market operations-selling of securities or short-term bonds

Raising the reserve requirement Raising the discount rate/bank rate Raising the interest rate Selective credit control policy

FISCAL POLICY A deacrease in government

spending and an increase in the government’s total tax revenue will produce a surplus budget.

Increase in taxes

Decrease in government spending

DIRECT CONTROL MEASURES

Price control and rationing

Anti-hoarding campaign

Compulsory savings

THE END Thank you