Mohammad Ali Jinnah University

COURSE NAME

MACROECONOMICS
SUBMITTED TO

SIR HASHIM ZIA JAFFRI

ARTICLE NAME

DANGER OF HIGH INFLATION

PREPARED BY

Aziz Akber Ali

(SP10-MB-0042)

ABOUT US:
Inflation means a rise in prices of goods and services in an economy over a period of time. Inflation is caused by some demand side factors (Increase in money supply, Increase in income, Black money spending, Expansion of the Private Sector, Increasing Public Expenditures) and some Supply side factors (Shortage of factors of production, Industrial Disputes, Increase in exports (excess exports), Global factors, Neglecting the production of consumer goods).

 There are many causes for inflation, depending on a number of factors. For example, inflation can happen when governments print an excess of money to deal with a crisis. When any extra money is created, it will increase some societal groups buying power. All sectors in the economy try to buy more than the economy can produce. Shortages are then created and merchants lose business. In the end, the price level rises.

 Another common reason of inflation is a rise in production costs, which leads to an increase in the price of the final product. For example, if raw materials increase in price, this leads to the cost of production increasing, this in turn leads to the company increasing prices to maintain their profits. Inflation can also be caused by federal taxes put on consumer products. As the taxes rise, suppliers often pass on the burden to the consumer.

STEP TAKEN BY GOVERNMENT

Government claims that in order to keep the prices of essential commodities under control, it has been taking various measures throughout the year. In order to provide relief to the low and fixed income groups, the government has been selling wheat flour and sugar through the outlets of the Utility Stores Corporation (USC) at much lower prices than the market.

The government has also allowed the import of various items through land routes from neighboring countries. But, all these are secondary measures. Problems like inflation and poverty cant be resolved by applying the secondary measures directly, these need strategic planning. Unfortunately, in Pakistan, these core problems have never undergone such a planning process.