GROUP MEMBERS

Tariq Rahim Reg # 814 Obaid Ullah Reg # 816 Omer Ali Reg # 805

TARIQ RAHIM

Reg # 814 5th Semester Section B

OMER ALI

Reg # 805 5th Semester Section B

OBAID ULLAH

Reg # 816 5th Semester Section B

INFLATIONDefinitionCausesMeasurementEffectsInflation in Pakistan

Definition

1. An increase in the average level of prices of goods and services

2. Decrease in Purchasing power.

Inflation is not a reflection of any specific price, some go up and some go down. E.g, . . . . .

WE ALSO HAVE

Negative Inflation. Disinflation. Hyper Inflation.

NEGATIVE INFLATION Definition:

1. A decrease in the average level of prices of goods and services

2. Increase in Purchasing power.

It is also called Deflation. When the value of inflation goes in negative,

it become deflation or negative Inflation

DISINFLATION

Definition:

– A decrease in the rate of inflation

Disinflation is the value of decreasing inflation rate but not in the negative region.

HYPER INFLATION

Definition: A rapid and uncontrollable

increase in the rate of inflation is called Hyper Inflation.

HYPER INFLATION

* Hyper Inflation occurred in Germany during 1922-23.

* Savings became worthless

* Sacks of money required to buy food

* Borrowing ceased – Banking stopped

* Production came to a halt

* Unemployment rose tenfold

* German economy all but collapsed

MEASUREMENT

The rate of inflation is measured by the annual percentage change in the level of prices as measured by the consumer price index.

MEASUREMENT

CPI Item Weight CPI: An index of changes in average price of consumer

goods and services. CPI= (new price/old price)*10

Item Weight: Percentage of total expenditures spent on a specific product

MEASUREMENT

Average Inflation Rate. General Inflation Rate.

General Inflation:

Average Inflation Rate( f ):P( 1+ f )N= F

CPI CPI f

fCPI

CPI

f

CPI n

CPI

nn

nn

n

0

0

1

0

1

1

( ) ,_

_ /

_

where The genreal inflation rate,

The consumer price index at the end period ,

The consumer price index for the base period.

CAUSES

There are two types of causes of Inflation:

Demand Pull Cost Push

CAUSES

DEMAND PULL:

Defined as:

- Excess demand pulls up prices

Often caused by increases in government spending, such as wars

CAUSES

Faster rates of economic growth in other countries

CAUSES

COST PUSH:Defined as:

-Increase in Costs of Productions i.e raw Materials

There are two types of cost push Wages Push Profit Push

WAGES PROFIT

Definition:

-Attempts to increase wages faster than productivity

It is often caused by Unions

PROFIT PUSH

Definition:

- Attempts to increase profits by raising prices

Mostly large corporations are the cause of profit push

EFFECTS

-- Not all prices rise at the same rate

-- Not everyone suffers equally from inflation

Borrowers win because the real value

of their loan repayments decreases at the

same rate as inflation rises. If their incomes rise as well, they are

double winners.

EFFECTS

Real Life

Give an example or real life anecdote

Sympathize with the audience’s situation if appropriate

What This Means

Add a strong statement that summarizes how you feel or think about this topic

Summarize key points you want your audience to remember

Next Steps

Summarize any actions required of your audience

Summarize any follow up action items required of you