Post on 08-Apr-2018
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ADEEL IFTIKHAR
INFLATION AND ITS EFFECTS ON
INDIVIDUALS.
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INTRODUCTION.
Inflation is the persistent rise in general price levels.
Inflation causes things to go out of the affordability bracket.
The word individuals refers to common-man.
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RESEARCH OBJECTIVES.
Effects of inflation on wages (real and nominal)
Effects on consumer spending or purchasing power.
Effects on fixed income earners( pensions and bonds)
Effects on education and health sector.
Effects on utilities (gas and petrol)
Effects on taxation and government spending (fiscal policy)
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LITERATURE REVIEW.
Inflation and welfare
published by the econometric society
author Robert e lucah.Jr
Inflation stabilization and the consumption of durable goodspublished by Blackwell for the royal economic society
Nominal wage rigidity and rate of inflation
published by BLACKWELL for the Royal economic society
High inflation and real wages
published by Palgrave MacMillan journals on behalf of theinternational monetary fund
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LITERATURE REVIEW:
It is commonly asserted that a high rate of inflation is
inimical to economic growth.
At one extrema, there is the view that a major reduction in,
or even the elimination of present high rates of inflation is apre-requisite to the attainment of reasonable rates of
economic growth.
All of the articles which are mentioned above r thoroughly
analyzed to understand the inflation and its effects on all the
other things.
Inflation is very dangerous for an economy but there should
be some inflation in economy up to 2,3 percent which will
attract the investors and economic growth will take place.
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Inflation is a disease which eats all the pillars of an economy and thereis no economy in this world who is safe from it.
Inflation stabilization and the consumption of durable goods, inflationcan only be brought down at the cost of a recession.
Which means in order to control inflation we have to sacrifice somethingelse.
If we decrease inflation employment rate will also be decrease , similaris the case with investment, so it is so dangerous that it single handedcan destroy whole of the economy.
In the article high inflation and real wages it examined that how sharpdecline in real wages effects directly the households.
In inflation wages increases nominally but in real purchasing terms theydecreases
Furthermore inflation in long run is very dangerous for an economicstructure will lead to all the other problems if it is not cured on time.
Value of money decreases with an increase in inflation.
Articles showed the relation between inflation and welfare how an increasein inflation will cut welfare with more percentage
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PRIMARY SECONDARY Primary is field research.
Seeking information directly
from a source.
Type: Questionnaire.
Secondary is desk research.
Seeking information from an
indirect source.
Type: Articles(Literature
review)
METHODOLOGY
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Sample size=30.
30 questionnaires will be filled.
Type Of Sampling:
Simple random sampling. Snowball sampling.5
METHODOLOGY
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VARIABLES
Dependant: Inflation.
Independent: Income.(positive)
Taxation.(negative)
Savings.(negative)
Investment.(positive)
Rising costs(price level).(positive)
Imports( negative)and Exports(positive).
Government spending.(positive)
Unemployment.(negative)
Interest rates.(negative)
Business profits.(positive)
Exchange rates.(negative if imports)
Wage rates.(positive)
Standard of living(negative)
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InflationTaxes Income
Standard
of living
Government
spending
Unemployment
Trade
Consumption
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QUESTIONNAIRE:
A questionnaire is a research instrument consisting of a series
of questions and other prompts for the purpose of gathering
information from respondents.
C:\Users\Adeel\Documents\Adeel
Questionnaire.docx
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HYPOTHESIS:
Ho: Real income will remain same with an increase in
inflation
H1:Real income will decrease with an increase in inflation
Ho: Purchasing power has positive relation with inflation.
H1: Purchasing power has an inverse relation with inflation.
Ho: Government spending can not decrease effect ofinflation.
H1:Government spending can decrease effect of inflation.
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Ho: Standard of living is not effected due to inflation.H1: Standard of living is effected due to inflation.
Ho: Trade is not effected due to inflation.
H1: Trade is effected due to inflation.
Ho: Increase in inflation will have no effect on taxes.
H1: Increase in inflation will effect taxes.
Ho: Inflation causes unemployment to decrease.
H1: Inflation causes unemployment to increase.
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HYPOTHESIS TESTING
The single Regression Model is used for the testing of the Hypothesis.
Ho: Real income will remain same with an increase in inflation
H1: Real income will decrease with an increase in inflation
A
s t value is less than 2 so we do not reject H0.
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Ho: Purc si g power s positive rel tionwit infl tion.
H1: Purc sing power s n inverse rel tionwit infl tion.
As t value is less than 2 so we do not reject H0.
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Ho: Government spending c nnot decreaseeffect of inflation.
H1: Government spending candecreaseeffect of inflation.
As t value is less than 2 so we do not reject H0.
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Ho: Standardof living is not affecteddue to inflation.
H1: Standardof living is affecteddue to inflation.
As t value is less than 2 so we do not reject H0.
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H0: Trade is not affecteddue to inflation.
H1: Trade is affecteddue to inflation.
As t value is less than 2 so we do not reject H0.
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ONE VARIABLE ANALYSIS
1) INCOME
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2)CONSUMPTION (PU CHASING POWE )
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3)GOVE NMENT SPENDING
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4) STANDARD OF LIVING
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5) UNEMPLOYMENT
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GRAPHS OF INDEPENDENT VARIABLE
INCOME X1 (box and whisker plot)
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CONSUMPTION X2 (frequency istogram)
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GOVERNMENT SPENDING X3 (dot plot)
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STANDARD OF LIVING X4 (boxandwhisker plot)
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UNEMPLOYMENT X6
(frequency histogram)
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CorrelationAnalysis
Correlation analysis shows the relationship between the variables
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MULTIPLE REGRESSIONANALYSIS
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ConstraintsSimple size taken is 30, so unable to get appropriate results from the research because in
order to get accurate results simple size should be large.
ConclusionThe research was carried out to analyze the effects of inflation on individuals in a society. It wasfound that Inflation has a direct relation with each of us and it directly affects our life in many
ways. For example it decreases the income in real terms.Although it provides employment and
economic progress but it decreases the consumption power of a common man. In inflation
standard of living also decreases and people have to cut down many expenses. Government
spending also has a major role in inflation; if government starts giving subsidies in the period of
inflation then the pressure of inflation from a common man can be reduced like subsidies onutilities etc. Income does increases in nominal terms but not in real terms so it directly affects the
consumers. By reading the articles deeply it can be concluded that government or the controlling
class should consider this problem very seriously and should work on it. Inflation is also
necessary for an economy but if it is anticipated and mild only. If inflation is unanticipated and
hyper then the things will become very difficult and it will create many problems not just for
individuals but also for the whole economy. Inflation in economy will give supernormal profits tobusiness which will eventually lead to economic growth and that will create jobs for the people
and unemployment rate will be decreased. For an growing economy inflation is a must factor or
you can say that you cannot get progress without inflation because inflation cannot be taken out
of an economic system it is a compulsory part of the economic system. So after all the primary
and secondary research it can be concluded that governments should keep an eye on the inflation
rate because it directly affects the lives on individuals and to keep it in a controlled rate is veryimportant for the economy.