SUBMITTED TO:

SIR MUNIR KHAN

SUBMITTED BY:
HAMID RAZA NASIR
11850
FINAL PRESENTATION TOPIC:
INFLATION
What is inflation?

 In economics, inflation is a sustained increase in the general price

level of goods and services in an economy over a period of time.
When the general price level rises, each unit of currency buys fewer
goods and services; consequently, inflation reflects a reduction in
the purchasing power per unit of money – a loss of real value in the
medium of exchange and unit of account within the economy.
 Decline in the real value of money is inflation.
Causes of inflation

 Demand-pull inflation 
exists when aggregate demand for a good or service outstrips aggregate
supply. It starts with an increase in consumer demand. Sellers meet such an
increase with more supply. But when additional supply is unavailable,
sellers raise their prices. That results in demand-pull inflation.
 Cost-push inflation
It starts with a decrease in total supply or an increase in the cost of that
supply. Suppliers raise prices because they know consumers will pay it.
Causes of inflation

 Pricing Power Inflation -

Commonly known as the "Administered Price Inflation", this occurs
when business and individuals raise their prices to increase their
profits.
 Favorable Impacts of Inflation
The favorable impacts of inflation are as follows

 Higher Profits
 Better Investment Returns
 Increase in Production
 More Employment and Better Income
 Shareholders can earn a good income
Unfavorable Impacts of Inflation
 Fixed-Income Groups experience a fall in income
 Inequality in Income Distribution Increases
 Lenders face Losses
 Negative Impact on Export Income
Methods to Control Inflation

 Monetary policy – Higher interest rates reduce demand in the economy, leading to
lower economic growth and lower inflation.
 Control of money supply – Monetarists argue there is a close link between the
money supply and inflation, therefore controlling money supply can control inflation.
 Supply-side policies – policies to increase the competitiveness and efficiency of the
economy, putting downward pressure on long-term costs.
 Fiscal policy – a higher rate of income tax could reduce spending, demand and
inflationary pressures.
 Wage controls – trying to control wages could, in theory, help to reduce inflationary
pressures. However, apart from the 1970s, it has been rarely used.