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Inflation, Unemployment & Growth Rate:

A Case Study Of Bangladesh Economy.


Assignment On #

Macro Economics
[Course no: Fin-2209]

Prepared by:

Anik Ahmed
BBA 3rd Batch,
Department of finance Jagannath University,Dhaka.

Date of submission: 2th May, 2011.

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.

Anik Ahmed, Macro-Economics, BBA(Major in Finance),JNU.

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.

Anik Ahmed, Macro-Economics, BBA(Major in Finance),JNU.

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

2.3 Details On Unemployment.


2.4 Bangladesh Economic Overview

Conclusion
3.1 Findings of the Analysis

30 31 32 34

Part-3

3.2 Conclusion 3.3 Appendix 3.4 Bibliography

Anik Ahmed, Macro-Economics, BBA(Major in Finance),JNU.

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.

Key words: Inflation, Growth rate, GDP, economic stability, unemployment,


per-capita income etc.

The Invincible; BBA( Major in Finance), Jagannath University,Dhaka.

Anik Ahmed, Macro-Economics, BBA(Major in Finance),JNU.

1.2 Rationale of the study:


The report is assigned by our course teacher SAUD AHMED, lecturer, Dept of Finance as a part of our Macro-Economics [ Course Code; FIN-2209]. The topic of the report is Inflation, Unemployment & Growth Rate: A Case Study Of Bangladesh Economy. By conducting this study we can enhance our knowledge and skill to apply various research in professional life or higher educational life. The report has given us a chance to raise our quality in developing research instrument and its applications. By doing so we can develop our real life knowledge on Inflation, Growth Rate and Unemployment situation in Bangladesh.

1.3 Objectives Of The Report:


Primary Objective:
To know the present situation of Bangladesh economy.

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.

1.4 Scope Of The Report:


There were huge scopes to work in the arena of the report . Considering the dead line , the scope and exposure of the paper has been wide-ranging. The study Inflation, Unemployment & Growth Rate: A Case Study Of Bangladesh Economy has concerned on the economy of Bangladesh. The cause and effect of unemployment , the overview of inflation and the changes of growth rate has been showed in this report. By preparing this report it becomes more understandable about these three crucial sectors of our economy.

Anik Ahmed, Macro-Economics, BBA(Major in Finance),JNU.

1.5

Methodology:

Our report is made by both primary and secondary data. Here to complete our research we use-

Statistical data. Analysis of Data Sources of previous year data.

Here the secondary sources of information were used. The sources are:

Books web sites Annual report.

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

Details on Growth & GDP:

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.

There are two types1. Nominal GDP 2. Real GDP.

1. Nominal

GDP, also called money GDP, is calculated on the basis of the

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

Anik Ahmed, Macro-Economics, BBA(Major in Finance),JNU.

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

GDP, also called Constant Price GDP, is estimated by converting

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.

Bangladesh GDP - real growth rate:


GDP - real growth rate: 6% (2010 est.) 5.7% (2009 est.) 6% (2008 est.)

Year

GDP

real growth rateRank 51 48 84 50 58 67 85 19 39

Percent Change

Date of Information 2002 est

2003 2004 2005 2006 2007 2008 2009 2010 2011

4.40 % 5.30 % 4.90 % 6.40 % 6.60 % 6.30 % 4.90 % 5.70 % 6.00 %

20.45 % -7.55 % 30.61 % 3.13 % -4.55 % -22.22 % 16.33 % 5.26 %

2003 est 2004 est 2005 est 2006 est 2007 est 2008 est 2009 est 2010 est

Real Growth Rate(Graphical Presentation):

Anik Ahmed, Macro-Economics, BBA(Major in Finance),JNU.

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

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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 %

Nominal GDP, Real GDP, and Price Level:


Nominal GDP is GDP evaluated at current market prices. Therefore, nominal GDP will include all of the changes in market prices that have occurred during the current year due to inflation or deflation. Inflation is defined as a rise in the overall price level, and deflation is defined as a fall in the overall price level. In order to

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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.

GDP- Purchasing power parity:


Purchasing power parity (PPP) is a theory of long-term equilibrium exchange rates based on relative price levels of two countries. The idea originated with the School of Salamanca in the 16th century and was developed in its modern form by Gustav Cassel in 1918. The concept is founded on the law of one price, the idea that in absence of transaction costs and official barriers to trade, identical goods will have the same price in different markets when the prices are expressed in terms of one currency like US Doller. Purchasing power parity (PPP) allows you to compare the standard of living between
countries by taking into account the impact of their exchange rates.

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 $)

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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

2.3 Details on Inflation:


In economics, inflation is a rise in the general level of prices 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 also reflects an erosion in the purchasing power of money a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time. Although the price of the food in international market is high but the authority are trying to downward the inflation rate which is expected at 7% whereas the past one (November, 2010), was 8.14%.

Inflation (consumer prices): This entry furnishes the annual percent


change in consumer prices compared with the previous year's consumer prices.

Year

Inflation (average consumer prices)

Percent Change

1980

15.385

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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 %

2000 2001 2002 2003

2.483 1.908 3.719 5.361

-59.82 % -23.16 % 94.92 % 44.15 %

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2004 2005 2006 2007

6.103 7.04 6.77 9.109

13.84 % 15.35 % -3.84 % 34.55 %

2008

8.9

-2.29 %

2009 2010

5.426 8.504

-39.03 % 56.73 %

Inflation, average consumer prices (Graphical Presentation):

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.

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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.

80.65 % 7.14 % 16.67 % 2.86 % 26.39 % -2.20 % -39.33 % 50.00 %

2003 est. 2004 est. 2005 est. 2006 est. 2007 est. 2008 est. 2009 est. 2010 est.

Inflation Rate (Graphical Presentation):

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2003

2004

2005

2006

2007

2008

2009

2010

2011

-YearCalculating the rate of inflation or deflation:


Suppose that in the year following the base year, the GDP deflator is equal to 110. The percentage change in the GDP deflator from the previous (base) year is obtained using the same formula used to calculate the growth rate of GDP. This percentage change is found to be -

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%.

Consumer price index:.


The GDP deflator is not the only index measure of the price level. Among the many other price indices, the consumer price index (CPI) is the most frequently cited. The CPI differs from the GDP deflator in two important ways. First, the CPI measures only the change in the prices of a basket of goods consumed by a typical household. Second, the CPI uses base year quantities rather than current year quantities in calculating the price level index value. The formula for the CPI is given as

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Construction of a price index:


As an example of a CPI index, assume for the sake of simplicity that the basket of goods consumed by a typical household consisted of just three goods: pizza, soda, and ice cream. The quantities consumed of each of these three goods in the base year are given in Table , along with the prices of these three goods in both the base year and the current year.

Data for A CPI Index


Good Pizza Soda Ice cream Base year quantity 12 25 15 Base year price $11.25 1.55 2.95 Base year expenditure $135.00 38.75 44.25 $218.00 Current year price $12.00 1.45 3.05 Current year expenditure $144.00 36.25 45.75 $226.00

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

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In other, words, the rate of inflation in the current year is 3.67%.

A Brief Discussion On Inflation:


Inflation's effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in non-monetary capital projects. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. Today, most mainstream economists favor a low, steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.

How inflation affects individual:


Inflation always hurts our standard of living. Rising prices means you have to pay more for the same goods and services. If your income increases at a slower rate as inflation, your standard of living declines even if you are making more. Inflation's main consequence is a subtle reduction in your standard of living. Inflation doesn't affect everything equally. Gas prices can double while your home loses value. This makes financial planning more difficult. Inflation is really bad for your retirement planning because your target has to keep getting higher and higher to pay for the same quality of life. In other words, your savings will buy less. As a result, you will need to save more today to pay for higher priced goods

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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.

Inflations effects on economy:


Understanding inflation is crucial to investing because inflation can reduce the value of investment returns. Inflation affects all aspects of the economy, from consumer spending, business investment and employment rates, to government programs, tax policies, and interest rates. Inflation is a sustained rise in overall price levels. Moderate inflation is associated with economic growth, while high inflation can signal an overheated economy.

Causes Of Inflation In Bangladesh:


Economists do not always agree on what spurs inflation at any given time. However, certain forces clearly contribute to inflation.
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. 2. Higher oil prices, in particular, can have the most pervasive impact on an economy. This, in turn, means that the prices of all goods and services that are transported to their markets by truck, rail or ship will also rise. 3. Exchange rate movements can presage inflation. As a countrys currency depreciates, it becomes more expensive to purchase imported goods, which puts upward pressure on prices overall. 4. Over the long term, currencies of countries with higher inflation rates tend to depreciate relative to those with lower rates. Because inflation erodes the value of investment returns over time, investors may shift their money to markets with lower inflation rates.
1.

How Can Inflation Be Controlled ?


Central banks, attempt to control inflation by regulating the pace of economic

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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.

2.4 Details On Unemployment:


Bangladesh is most densely populated country with a partial resource. There are about 150 millions of people and 49 percent of them live under poverty line. Unquestionably, unemployment is a Big Macroeconomic Issaue of Bangladesh.

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.

Unemployment situation in Bangladesh:


According to a study of the International Labor Organization (ILO), the rate of growth of unemployment in Bangladesh was 1.9 per cent in the decade of the nineties. But the growth in unemployment currently is 3.7 per cent. The ILO figures also show Bangladesh in the twelfth position among the top twenty countries in the world where unemployment is rising. The number of the unemployed in Bangladesh now is estimated at 30 million. The way the

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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.

Unemployment rate: 2011- 4.8% (2010 est.)


2010- 5.1% (2009 est.)
[note: about 40% of the population is underemployed; many participants in the labor force work only a few hours a week, at low wages.]

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.

Unemployment Rate (Graphical Presentation):

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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

1. Real wage (classical) unemployment:


Real wage unemployment is a form of disequilibrium unemployment that occurs when real wages for jobs are forced above the market clearing level. Traditionally, trade unions and wages councils are seen as the institutions causing this type of unemployment although the importance of trade unions in the UK labour market has diminished significantly over recent years and this has not stopped unemployment reaching nearly three million twice in the last twenty years.

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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.

2. Demand deficient (or cyclical) unemployment:


Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for goods and services. This is also known as Keynesian "demand deficient" unemployment and is associated with the transition of the economy through the business cycle. When there is an economic recession we expect to see a rising level of unemployment because of plant closures and worker lay-offs. This is due to a fall in demand leading to a contraction in output across many industries. Although demand deficient unemployment is usually associated with economic recessions it can also exist in the long run when the economy is constantly run below capacity. As the economy recovers from a downturn, we expect to see the problem of cyclical unemployment decline. This has certainly been the case in the Uk over recent years as the recovery of output from the early 1990s recession gathered momentum. Nine years of sustained economic growth has led to the lowest recorded unemployment levels since the end of 1985. Unemployment fell below one million (using the claimant count measure) in February 2001

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:
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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.

Some recommendations to reduce Unemployment:


1.Create a National Office of Employment to develop long term strategies and oversight of the Bangladesh labor market in order to track trends, analyze data, research emerging problems, and prepare early interventions. 2.Identify growing and potential industries and the skills they will need in future staff. 3.Design a plan which allows for the rapid retargeting of training courses as

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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.

2.4 Past year Bangladesh Economic Overview:


Bangladesh is an agricultural country, with some three-fifths of the population engaged in farming. Jute and tea are principal sources of foreign exchange. Other important agricultural products are wheat, pulses (leguminous plants, such as peas, beans, and lentils), sweet potatoes, oilseeds of various kinds, sugarcane, tobacco, and fruits such as bananas, mangoes, and pineapples. Past year Economy of Bangladesh at a glanceGDP: purchasing power parity$175.5 billion (1998 est.) GDPreal growth rate: 4% (1998 est.) GDPper capita: purchasing power parity$1,380 (1998 est.) GDPcomposition by sector: agriculture: 30% industry: 17% services: 53% (1997) Population below poverty line: 35.6% (1995-96 est.) Household income or consumption by percentage share: lowest 10%: 4.1% highest 10%: 23.7% (1992) Inflation rate (consumer prices): 7% (1998) Labor force: 56 million [note: extensive export of labor to Saudi Arabia, Kuwait, UAE, and Oman (1996)] Labor forceby occupation: agriculture 65%, services 25%, industry and mining 10% (1996)

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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

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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.

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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.

_____________________

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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

CPI Inflation (National, Rural & Urban), Base: 1995-96 = 100


CPI Inflation (National)

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

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September October November

8.12 8.12 8.14

9.78 9.83 9.98

5.41 5.31 5.04

7.61 6.86 7.54

9.72 8.43 9.80

3.69 3.82 3.33

CPI Inflation (Rural)


Period General
2009-2010 July August September October November December January February March April May June 2010-11P July August September October November

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

Twelve-Month Average Basis Non-food General


6.10 5.89 5.60 5.52 5.60 5.77 5.87 5.93 5.88 5.79 5.68 5.62 5.76 5.68 5.62 5.48 5.21 3.21 4.25 3.99 6.62 6.83 8.27 8.81 8.96 8.81 8.77 8.91 8.74 7.45 7.87 8.21 7.36 8.10

Point to Point Basis Food


2.99 4.07 3.83 7.26 7.00 8.82 9.92 10.34 10.35 10.36 10.66 10.40 8.58 9.95 10.51 9.14 10.53

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

CPI Inflation (Urban)


Period General 2009-2010 July August September October November December January February March April May June 2010-11P July August September October November Food 5.76 5.50 5.26 5.26 5.50 5.81 6.16 6.51 6.81 6.99 7.19 7.69 7.91 7.97 7.96 7.83 7.65 6.60 6.17 5.85 5.90 6.20 6.56 7.02 7.56 8.12 8.51 8.91 9.85 10.25 10.41 10.42 10.21 10.06 Twelve-Month Average Basis Non-food General 4.72 4.66 4.54 4.46 4.64 4.86 5.08 5.20 5.17 5.08 5.03 4.99 4.98 4.90 4.85 4.82 4.59 4.09 5.81 6.15 6.96 8.27 9.10 9.44 9.29 8.70 7.95 8.01 8.57 6.79 6.64 6.11 5.61 6.14 Point to Point Basis Food Non-food 4.14 6.92 7.67 9.00 9.83 11.08 12.07 12.32 11.86 10.72 10.86 11.97 9.01 8.95 7.95 6.83 8.12 4.03 4.39 4.20 4.34 6.27 6.60 6.18 5.57 4.83 4.56 4.53 4.36 3.93 3.63 3.67 3.97 3.55

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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.

5. Source: International Monetary Fund - 2010 World Economic Outlook

Others:
Annual Report of Bangladesh Bank ( 2000 to 2010 ).

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