INFLATION

Semester: Spring, 2010-2011Sec: DProgram: Bachelor of Business AdministrationGroup Name: BOOK WORM

Name:Name: ID:ID: Email:Email: Contact Contact Number:Number:

Signature:Signature:

MAMUN MAMUN ABDULLAH ALABDULLAH AL

09-14301-209-14301-2 mamun.talha@gmail.commamun.talha@gmail.com 0167005285901670052859

ASHIQUZZAMAN, ASHIQUZZAMAN, MDMD

09-14063-209-14063-2 nirob92@yahoo.comnirob92@yahoo.com 0167558849801675588498

MAHMUDUL MAHMUDUL HASAN SHAKI HASAN SHAKI

09-14188-209-14188-2

SHAWON SHAWON MOHIBUL HAQUE MOHIBUL HAQUE

09-12916-109-12916-1 shawanmohibul@gmail.comshawanmohibul@gmail.com 0167717794201677177942

It is a rise in the general level of prices of It is a rise in the general level of prices of

goods and services goods and services

It is continuous and considerableIt is continuous and considerable

Inflation is also an erosion in the purchasing Inflation is also an erosion in the purchasing

power of moneypower of money

What is Inflation

Types of Inflation

1. Creeping: 3% annual rise

2. Walking or Trotting: Rise between 3% to 6%

3. Running: Over 8% rise

4. Hyper Inflation or Galloping: 20% to 30% rise

5. Open: No limit to price rise

6. Suppressed: Administrative measures

Causes

Demand SideDemand Side

1. Increase in Money Supply1. Increase in Money Supply

2. Deficit Financing2. Deficit Financing

3. Increase in Public Expenditure3. Increase in Public Expenditure

4. Increase in Investment Expenditure4. Increase in Investment Expenditure

5. Increase in Export Demand5. Increase in Export Demand

6. Increase in Population6. Increase in Population

Supply SideSupply Side

1.1. Higher Wage RateHigher Wage Rate

2.2. Higher TaxesHigher Taxes

3.3. Higher Administered pricesHigher Administered prices

4.4. Supply ShocksSupply Shocks

5.5. HoardingHoarding

Effects

Effects on ProductionEffects on Production 1) Uncertainty in economy 1) Uncertainty in economy: Investment and production activities reduce: Investment and production activities reduce

2) Affects patterns of production: 2) Affects patterns of production: Resources directed towards luxuriesResources directed towards luxuries

3) Causes misallocation of resources: 3) Causes misallocation of resources: HoardingHoarding

4) Encourages speculation: 4) Encourages speculation: Quick and easy profitsQuick and easy profits

5) Reduces degree of competition: 5) Reduces degree of competition: Inefficient producers are protectedInefficient producers are protected

Effects on Distribution of Income1) Debtors and Creditors: Debtors gain, creditors lose

2) Profit earners: Sharp profits

3) Wage earners and Salaried class: Lose

4) Investors: Big investors gain, fixed-interest investors lose

5) Pensioners: Lose

6) Farmers: As a group gain, small farmers lose

Adverse effect on Savings: Reduced purchasing power

Effects on balance of payments: Imports increase, exports decrease

Effects on public revenue: More revenue earned from indirect taxes

Confidence in currency: Reduces

Social and Moral degradation: Burglary etc.

Political Instability: Major issue

How to Control Inflation

1. Quantitative Credit ControlsSteps are taken by the BD Bank to reduce supply of money through credit

(a) Interest Rates (b) Open Market Operations (c) Variable Cash Reserve Ratio

2. Qualitative Credit controlsCentral banks are persuaded or forced by BD Bank to limit loans given

(a) Rationing of credit (b) Moral Suasion (c) Publicity

(d) Direct Action

Monetary Policy

Also called Direct Wage Control

Income in tune with production

Trade unions make it difficult

Income Policies

Increasing Availability of Goods

Increase the production of essential consumer goods

Raw materials for such products may be imported

Latest technology must be used

Fiscal Policy

Public Expenditure: Reduce

Public Borrowing: Increase

Taxation: Increase

PRICE CONTROL AND RATIONING

Maximum prices of commodities are fixed

Goods are allocated to ration card holders

Encourages Black-Marketing

Thank You