Submitted By:

M Arslan BSF-1703113
Mohsin Ali BSF-1703154
Asad Shabbir BSF-1703167
Submitted To:
Mr. Bilal Ahsan
Inflation, Deflation
Causes & Effects
 Inflation:
Introduction:
Collective increase in the supply of money, in money
incomes, or in prices refers to inflation. Inflation is generally
thought of as an undue rise in the general level of prices. 

Definition:
“In the state of inflation the prices are rising i. e., the value of
money is falling.”
According to Meyer:
“An increase in the prices that occurs after full employment
has been attained.”
Causes of Inflation
Demand-Pull Effect

Cost-Push Effect
Demand-pull inflation
This inflation occurs when the business, government,
foreign Industries collectively try to purchase more
output than the economy is capable of producing.
Demand-pull inflation means:
Excess demand and ‘too much money chasing too few
goods.’
The economy is at full employment/full capacity.
The economy will be growing at a rate faster than the
long-run trend rate.
A falling unemployment rate.
Cost push inflation:
Cost-push inflation develops because the higher costs
of production factors decreases in aggregate supply
(the amount of total production) in the economy.

Cost-push inflation is a phenomenon in which the

general price levels rise (inflation) due to increases in
the cost of wages and raw materials.
Effects of Inflation:
Stuff Costs More
Borrowing Money Is More Expensive
Adjustable-Rate Mortgage Rates Might Go Up
Hoarding Could Result
Long-Term Savings Might Erode
Deflation:
Deflation describes the general decline in the prices
of goods and services in an economy, which in turn
increase the purchasing power of money.

It is the opposite of inflation.

If the deflation last for longer period, it harms the
growth and development of the economy.
Causes of Deflation:
Change in Structure of Capital Markets
Increased Productivity
Decrease in Currency Supply
Austerity Measures
Deflationary Spiral
Effects of Deflation:
Reduced Business Revenues
Wage Cutbacks and Layoffs
Changes in Customer Spending
Reduced Stake in Investments
Reduced Credit