Professional Documents
Culture Documents
Macro Economics
[Course no: Fin-2209]
Prepared by:
Anik Ahmed
BBA 3rd Batch,
Department of finance Jagannath University,Dhaka.
Acknowledgement:
First of all, we would like to thank the Almighty for giving us the strength,
and the aptitude to complete this analysis within due time. We are deeply indebt to our course teacher Saud Ahmed for assigning us such an interesting topic named Inflation, Unemployment & Growth Rate: A Case Study Of Bangladesh Economy. We also express the depth of our appreciation to1. Dr. Abul Kalam Azad, DGM ( Banking Regulation and Policy Dept), Bangladesh Bank. 2. Md. Ezazul Islam, Research Economist (Policy Analysis Unit),Bangladesh Bank. for there suggestions and instructions, which helped us in completing this analysis.
Executive summary:
Bangladesh economy has experienced both macro-economic stability and robust economic growth. The GDP, chief indicator of an economy shows that for a long time, Bangladesh economy is backward. The years after Independence, the size of real GDP, Per capita GDP and there growth rate was small. The condition improved from 1990s. yet, the growth trend and structural changes of GDP in Bangladesh are not satisfactory. Many problems are responsible for this unsatisfactory situation like- the shortages of domestic production, narrow structure of exports, increasing growth rate of import, failure in the invocation of much Foreign Development Investment (FDI), defective banking system with cumulative interest of loans, Continuous loss in public sectors, poor infrastructure, inefficient taxation, high inflation rate, increasing rate of unemployment political instability and serious deterioration of law and order situation etc. if these problems can be changed, the dynamic change will come to our economy. Economic growth (rise in GDP) is always deemed to be desirable as an outcome. Economic growth means more output, employment, income and, in consequence, more wellbeing for the people. That is why most nations strive to reach the higher growth path. Economists used to "worship" growth once, till they realised that growth could not be an end in itself; it was a means to an end. In other words, economic growth is necessary but not sufficient for people's welfare.
Table Of Contents:
Topics
Executive Summary
Page No
05
07
Introduction
1.1 1.2 1.3 1.4 1.5 1.6 Introduction Rational of the study Objective of the Analysis Scope of the study Methodology of the study Limitation of the study
08 08 08 09 09
Part-1
Descriptive Analysis
2.1
Details on Growth & GDP Details on Inflation
10 15 23 28
Part-2
2.2
Conclusion
3.1 Findings of the Analysis
30 31 32 34
Part-3
Part-1
Introduction
1.1
Abstract:
It is widely belief that moderate and stable Inflation rate promotes the development process of a country and hence its economic growth. Moderate inflation supplements returns to savers, enhances investment and therefore accelerate the economic growth of a country. This report empirically explores the present situation of Bangladesh economy through Growth and GDP, Inflation and unemployment rate. Bangladesh is believed to have performed well over the years as far as the indicators are concerned. Economic growth rate crossed the 6 percent mark in recent years from a feeble 4 percent or below in the 1980s and 5 percent plus in the second half of the 1990s. Under a business as usual scenario, reaching the target of 7 percent growth rate does not seem to be too difficult. By and large, the per-capita income grew roughly at 4 percent per year in a regime of falling population growth rate.
Secondary Objectives:
To understand why Unemployment is a curse for our economy ? To show the impacts of high Inflation rate on GDP. To learn the major influential factors of our Economy.
1.5
Methodology:
Our report is made by both primary and secondary data. Here to complete our research we use-
Here the secondary sources of information were used. The sources are:
1.6
Limitations:
While conducting the report on Inflation, Unemployment & Growth Rate: A Case Study Of Bangladesh Economy, some limitations were yet there: Some technical problems bound us to do our report in double. Because of time shortage many related area can not be focused in depth. Direct conversation with the top leveled management cant success.
Part-2
Anik Ahmed, Macro-Economics, BBA(Major in Finance),JNU.
Descriptive Analysis
2.1
Growth:
Growth means something grown and growing. It is a process of becoming larger or longer or more numerous or more important. Economic growth means the economic development of a country, measurable by any indicator like GDP, prevailed in an economy, and commonly expressed in statistical and mathematical numbers. There are two common and popular measures for the estimate of economic growth rate, as Gross Domestic Product (GDP) and Gross National Product (GNP).The growth of Gross Domestic Product is usually a good indication of economic growth.
GDP:
GDP is the abbreviation of the economic term Gross Domestic Product. GDP is defined as the total value of all goods and services produced within that territory during a specified period (most commonly, per year). Another definition is that the GDP is the market value of all the goods and services produced by labor and property located in the region, usually a country. GDP can be estimated by two following ways-
1.GDP= consumption + investment + government expenditures + exports imports. 2.GDP=GNP - The net inflow of labor and property incomes from abroad.
1. Nominal
current price or todays price, by which comparison between GDPs of different years may be incorrect because of the impact of inflation.
It can be misleading when inflation is not accounted for in the GDP figure because the GDP will appear higher than it actually is. The same concept that applies to return on investment (ROI) applies here. If you have a 10% ROI and inflation for the year has been
3%, your real rate of return would be 7%. Similarly, if the nominal GDP figure has shot up 8% but inflation has been 4%, the real GDP has only increased 4%.
2. Real
current information into a standard price of a specific year or years, for example, 1985 takes, which can be more reliable than the first one and is more acceptable to the economists.
Year
GDP
Percent Change
2003 est 2004 est 2005 est 2006 est 2007 est 2008 est 2009 est 2010 est
GDP-Constant Prices And Percentage Change(1980-2010): Here showing the previous 30 years GDP-Constant prices And Percentages changes. The formula for percentages changes is
Percentages Changes= (present year-past year)/Past Year Prices * 100
Like, (3.075-.375)/0.375*100= 720.27%
Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 GDP- constant prices 0.375 3.076 3.206 4.61 4.177 3.744 3.985 2.931 2.388 4.298 720.27 % 4.23 % 43.79 % -9.39 % -10.37 % 6.44 % -26.45 % -18.53 % 79.98 % Percent Change
10
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
4.603 4.203 4.801 4.324 4.513 4.77 5.013 5.304 5.044 5.421 5.6 4.834 4.845 5.776 6.108 6.302 6.525 6.305 5.959 5.64 5.778
7.10 % -8.69 % 14.23 % -9.94 % 4.37 % 5.69 % 5.09 % 5.80 % -4.90 % 7.47 % 3.30 % -13.68 % 0.23 % 19.22 % 5.75 % 3.18 % 3.54 % -3.37 % -5.49 % -5.35 % 2.45 %
11
abstract from changes in the overall price level, another measure of GDP called real GDP is often used. Real GDP is GDP evaluated at the market prices of some base year. For example, if 1990 were chosen as the base year, then real GDP for 1995 is calculated by taking the quantities of all goods and services purchased in 1995 and multiplying them by their 1990 prices.
GDP deflator:
Using the statistics on real GDP and nominal GDP, one can calculate an implicit index of the price level for the year. This index is called the GDP deflator and is given by the formula
The GDP deflator can be viewed as a conversion factor that transforms real GDP into nominal GDP. Note that in the base year, real GDP is by definition equal to nominal GDP so that the GDP deflator in the base year is always equal to 100.
For Example:Using the official exchange rate, China's 2010 GDP was $5.745 trillion
compared to $14.6 trillion for the U.S. That means that, for each of the 1.337 billion people living in China, the GDP per capita would be $4,297, about the same standard of living as Indonesia or Fiji.
The Previous 10 years GDP- Purchasing power parity is given below in billionsyear GDP (purchasing power parity) (Billion $)
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
187 203 230 239 258.8 275.7 305.9 336.7 208.3 201
Year
Percent Change
1980
15.385
13
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
14.545 12.875 9.531 10.414 10.465 10.175 10.828 9.674 8.734 10.522 8.285 3.624 2.979 6.15 10.117 2.455
-5.46 % -11.48 % -25.97 % 9.26 % 0.49 % -2.77 % 6.42 % -10.66 % -9.72 % 20.47 % -21.26 % -56.26 % -17.80 % 106.45 % 64.50 % -75.73 %
1997
4.959
102.00 %
1998
8.648
74.39 %
1999
6.179
-28.55 %
14
2008
8.9
-2.29 %
2009 2010
5.426 8.504
-39.03 % 56.73 %
1980_81 _82_83_84_ 85_86_87 _88_ 89_ 90_ 91_92_ 93_ 94_ 95_ 96_ 97_98_99_00_01_02_ 03_ 04_05_06_ 07_ 08_ 09-10
-Year-
Inflation Rate;
In economics, the inflation rate is a measure of inflation, the rate of increase of a price index (for example, a consumer price index). It is the percentage rate of change in price level over time. The rate of decrease in the purchasing power of money is approximately equal. An important economic indicator. It shows the rate at which prices are rising.
15
The percentage increase in the price of goods and services, usually annually.The annual rate of change or the year on year change of the CPI.Inflation is interpreted in terms of declining purchasing power of money. The percent increase in prices. Rate that reflects changes in the value of a currency over time. Now we are showing the Inflation rate of previous years with percentage changes and rank in below-
Year
2003 2004 2005 2006 2007 2008 2009 2010 2011
Inflation rate
(consumer prices) 3.10 % 5.60 % 6.00 % 7.00 % 7.20 % 9.10 % 8.90 % 5.40 % 8.10 %
Rank
117 67 160 160 163 184 137 148 185
Percent Change
Date of Information
2002 est.
2003 est. 2004 est. 2005 est. 2006 est. 2007 est. 2008 est. 2009 est. 2010 est.
16
2003
2004
2005
2006
2007
2008
2009
2010
2011
implying that the GDP deflator index has increased 10%. Another way of describing this finding would be to say that the inflation rate in the year following the base year was 10%. More generally, if the percentage change in the GDP deflator over some period is a positive X%, then the rate of inflation over the same period is X%. If the percentage change in the GDP deflator over some period is a negative X%, then the rate of deflation over that period is X%.
17
The base year expenditure figures are found by multiplying the base year quantities by the base year prices. Similarly, the current year expenditure figures are found by multiplying the base year quantities by the current year prices. In order to calculate a CPI for this basket of three goods, one needs only the total base year and current year expenditures on all three goods. The CPI value for the current year may then be calculated as follows:
The CPI value for the base year is always equal to 100. In this case,
Thus, the percentage change in the current year CPI from the base year CPI is
18
19
and services in the future. Since everything you buy today costs more, so you have less leftover income available to save. Inflation has another bad side-effect...once people start to expect inflation, they will spend now rather than later. That's because they know things will only cost more later. This consumer spending heats up the economy even more, leading to further inflation. This situation is known as spiraling inflation because it spirals out of control. Inflation is important if you are holding bonds or Treasury notes. These fixed price assets only give a fixed return each year. As inflation spirals faster than the return on these assets, they become less valuable. As they become less valuable, people rush to sell them, further depreciating their value. As their value becomes lower, the U.S. government is forced to offer higher interest rates to sell them at all. This increases mortgage interest rates.
20
activity. Management of the money supply by central banks in their home regions is known as monetary policy. Raising and lowering interest rates is the most common way of implementing monetary policy.
Lowering short-term rates encourages banks to borrow from the central banks and from each other, effectively increasing the money supply within the economy. Banks, in turn, make more loans to businesses and consumers, which stimulates spending and overall economic activity. As economic growth picks up, inflation generally increases. Raising short-term rates has the opposite effect: it discourages borrowing, decreases the money supply, dampens economic activity and subdues inflation. Central banks can also tighten or relax banks reserve requirements. Banks must hold a percentage of their deposits with the central banks as cash on hand. Raising the reserve requirements restricts banks lending capacity, thus slowing economic activity, while easing reserve requirements generally stimulates economic activity.
The government at times will attempt to fight inflation through fiscal policy. The government can attempt to fight inflation by raising taxes or reducing spending, thereby putting a damper on economic activity; conversely, it can combat deflation with tax cuts and increased spending designed to stimulate economic activity.
Unemployment:
Unemployment occurs when a person is able and willing to work but currently without work. The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed.
21
rate of unemployment is increasing, it is feared that at this rate unemployment would soar to some 60 million by 2015. According to another estimate, every year some 2.7 million young persons are becoming eligible for jobs whereas only about 0.7 million of them are getting employment.
Year
2003 2004 2005 2006 2007 2008 2009 2010 2011
Unemployment rate
40.00 % 40.00 % 40.00 % 2.50 % 2.50 % 2.50 % 2.50 % 5.10 % 4.80
Rank
12 14 178 22 23 27 27 46 44
Percent Change
0.00 % 0.00 % -93.75 % 0.00 % 0.00 % 0.00 % 104.00 % -5.88 %
Date of Information
2002 est. 2002 est. 2004 est. 2005 est. 2006 est. 2007 est. 2008 est. 2009 est. 2010 est.
22
This entry contains the percent of the labor force that is without jobs. Substantial underemployment might be noted.
Types of Unemployment:
In a modern economy unemployment has a variety of causes. Some of them relate to the general level of economic activity, others are the result of a failure of the labor market in an economy to work optimally. Among the main types of unemployment we can consider:
Real wage unemployment Demand deficient unemployment Frictional unemployment Structural unemployment Hidden unemployment
23
Classical unemployment is thought to be the result of real wages being above their market clearing level leading to an excess supply of labour. Some economists believe that the introduction of the national minimum wage may create some classical unemployment in industries where average wage rates are closer to the NMW level and where international competition from low-labour cost producers is severe.
3. Frictional unemployment:
Frictional unemployment is transitional unemployment due to people moving between jobs: For example, newly redundant workers or workers entering the labour market (such as university graduates) may take time to find appropriate jobs at wage rates they are prepared to accept. Many are unemployed for a short time whilst involved in job search. Imperfect information in the labour market may make frictional unemployment worse if the jobless are unaware of the available employment opportunities. Some of the frictionally unemployed may opt not to accept jobs if they believe the tax and benefit system will reduce significantly the net increase in income from taking paid work. When this happens there are dis-incentives for the unemployed to accept work.
4. Structural unemployment:
Anik Ahmed, Macro-Economics, BBA(Major in Finance),JNU.
24
Structural unemployment occurs when people are made unemployed because of capital-labour substitution (which reduces the demand for labour) or when there is a long run decline in demand in their particular industry. Structural unemployment exists where there is a mismatch between their skills and the requirements of the new job opportunities. Many of the unemployed from heavy manufacturing industry (e.g. in coal, steel and heavy engineering) have found it difficult to gain reemployment without an investment in re-training. This problem is one of occupational immobility. The Labour Government's New Deal programme has focused attempts to reduce long-term unemployment by increasing the human capital of the unemployed and improving their employability in the eyes of potential employers.
5. Hidden unemployment:
Whatever the published figures for unemployment, there are bound to be people who are interested in taking paid work but who, for one reason or another, are not classified as unemployed. An example of this is discouraged workers - people who have effectively given up active search for jobs perhaps because they have been out of work for a long time and have lost both the motivation to apply for jobs and also the skills required. The poverty trap can also act to increase hidden unemployment. Jobless workers may not apply for jobs because of financial disincentives created by the interaction of the income tax and state benefits system.
Effects of unemployment:
1. 2. 3. 4. Effect on family Effect on economy Effect on society Effect on community Effect on crime
5.
25
Community Colleges and vocational schools are traditionally 5 to 15 years behind current needs. 4. Renovate the processes of State Unemployment Offices by implementing coordinated support programs in which workers participate as part of receiving unemployment benefits and employers participate as a means of meeting their future needs for staff. 5.Provide incentives for employers to hire more part-time workers.
26
Unemployment rate: 35.2% (1996) Industries: jute manufacturing, cotton textiles, food processing, steel, fertilizer Industrial production growth rate: 3.6% (1997) Electricityproduction: 11.5 billion kWh (1997) Electricityproduction by source: fossil fuel: 97.35% hydro: 2.65% nuclear: 0% other: 0% (1996) Electricityconsumption: 11.3 billion kWh (1996) Electricityexports: 0 kWh (1996) Electricityimports: 0 kWh (1996) Agricultureproducts: rice, jute, tea, wheat, sugarcane, potatoes; beef, milk, poultry Exportscommodities: garments, jute and jute goods, leather, frozen fish and seafood Exportspartners: Western Europe 42%, US 30%, Hong Kong 4%, Japan 3% (FY95/96 est.) Importscommodities: capital goods, textiles, food, petroleum products Importspartners: India 21%, China 10%, Western Europe 8%, Hong Kong 7%, Singapore 6% (FY95/96 est.) Debtexternal: $16.7 billion (1997) Economic aidrecipient: $1.475 billion (FY96/97) Currency: 1 taka (Tk) = 100 poisha Exchange rates: taka (Tk) per US$148.500 (January 1999), 46.906 (1998), 43.892 (1997), 41.794 (1996), 40.278 (1995), 40.212 (1994) Fiscal year: 1 July30 June
27
Part- 3 Conclution
3.1 Findings of the Analysis:
The intention of this report is to examine the influential factors of the Macro economics of Bangladesh Which are Inflation, GDP and Growth Rate, Unemployment etc. The major findings of the overall study are discussed below: Inflation is sometime good for our country but most of the time it brings the misery of the people of Bangladesh. The growth rate is increasing in a decreasing rate. Real growth rate is not satisfactory in recent years . Unemployment rate is decreasing day by day, but is not satisfactory still now. Should Design a plan which allows for the rapid retargeting of training courses as Community Colleges and vocational schools are traditionally 5 to 15 years behind current needs. Bangladesh in the twelfth position among the top twenty countries in the world where unemployment is rising. Rising commodity prices are perhaps the most visible inflationary force because when commodities rise in price, the costs of basic goods and services generally increase.
28
3.2 Conclusion:
Bangladesh has in recent decades achieved reasonably rapid economic growth and significant progress in social development indicators despite many impediments: the desperate initial conditions after gaining independence, lack of resources, natural disasters, widespread corruption, and a record of systemic governance failure. By identifying the sources of growth stimulus and the drivers of social transformation, the paper addresses what it calls Bangladeshs development surprise. The policy-making process is analyzed as the outcome of incentives created by patronage politics as opposed to the compulsion for the government to play an effective developmental role. The paper examines the governance-growth nexus as affecting the pace and quality of growth and its inclusiveness. If the governance environment has been barely adequate to cope with an economy breaking out of stagnation and extreme poverty, it increasingly may prove a barrier to putting the economy firmly on a path of modernization and global integration. Bangladeshs experience also shows that it is possible to make rapid initial progress in many social development indicators by creating awareness through successful social mobilization campaigns and by reaping the gains from affordable low-cost solutions. Further progress, however, will require increased public social spending and improved quality of public service delivery.
_____________________
29
3.3 Appendix:
Growth paths of monetary aggregates against program Monetary aggregates (y-o-y growth in percent)
June 09 (Prog.) 1. Net foreign assets 2. Net domestic assets Domestic credit Credit to the pub. sec. (incld. govt.) Credit to the pvt. Sec. 3. Broad money 4. Reserve money June 10 27.2 17.8 15.9 20.3 14.6 19.2 31.9 41.3 18.8 17.6 -5.2 24.2 22.4 18.1 Sep-10 27.3 20.2 19.8 -5.0 26.7 21.5 13.1 Nov-10 10.8 24.9 24.2 9.6 27.8 22.2 19.4 Jun-11 4.2 17.6 17.9 25.3 16.0 15.2 13.0
Period General July August September October November December January February March April May June July August Food 6.04 5.60 5.15 5.11 5.21 5.42 5.67 5.95 6.26 6.51 6.78 7.31 7.63 7.87
Twelve-Month Average Basis Non-food General 2009-2010 6.31 5.72 3.46 5.72 5.55 4.69 5.15 5.30 4.60 5.14 5.23 6.71 5.25 5.33 7.24 5.48 5.53 8.51 5.80 5.66 8.99 6.20 5.73 9.06 6.71 5.68 8.78 7.17 5.60 8.54 7.64 5.51 8.65 8.53 5.45 8.70 2010-11P 8.98 5.54 7.26 9.38 5.47 7.52
Point to Point Basis Food Non-food 3.34 4.93 4.98 7.78 7.84 9.50 10.56 10.93 10.80 10.47 10.72 10.88 8.72 9.64 3.74 4.54 4.28 5.07 6.44 7.04 6.53 6.14 5.60 5.46 5.34 5.24 4.87 3.76
30
Food
6.16 5.64 5.10 5.05 5.10 5.27 5.49 5.73 6.03 6.33 6.62 7.16 7.52 7.82 8.18 8.24 8.34 6.19 5.52 4.85 4.81 4.84 5.02 5.28 5.62 6.11 6.60 7.10 7.96 8.43 8.93 9.50 9.66 9.95
Non-food
3.62 4.60 4.30 5.34 6.51 7.20 6.65 6.35 5.89 5.79 5.64 5.58 5.23 3.81 3.69 3.76 3.25
31
3.4 Bibliography:
Books:
1. Rudiger Dornbusch, Fischer And Startz, Macro Economics 9th edition.
2. K. K. Dewett , Modern Economic Theory, Last Edition (S . CHAND & COMPANY LTD. )
Websites:
1. www.info.org.com 2. www.google.com 3. www.answer.com
4. CIA World Factbook - Unless otherwise noted, information in this page is accurate as of March 11, 2010.
Others:
Annual Report of Bangladesh Bank ( 2000 to 2010 ).
32
33