INFLATION

Semester: Spring, 2010-2011

Sec: D
Program: Bachelor of Business Administration
Group Name: BOOK WORM

Name:

ID:

Email:

Contact
Number:

MAMUN
ABDULLAH AL

09-14301-2

mamun.talha@gmail.com

01670052859

ASHIQUZZAMAN,
MD

09-14063-2

nirob92@yahoo.com

01675588498

MAHMUDUL
HASAN SHAKI

09-14188-2

SHAWON
MOHIBUL HAQUE

09-12916-1

shawanmohibul@gmail.com

01677177942

Signature:

What is Inflation
It is a rise in the general level of prices of
goods and services

It is continuous and considerable

Inflation is also an erosion in the purchasing
power of money

Types of Inflation
1. Creeping: 3% annual rise
2. Walking or Trotting: Rise between 3% to 6%
3. Running: Over 8% rise
4. Hyper Inflation or Galloping: 20% to 30% rise
5. Open: No limit to price rise
6. Suppressed: Administrative measures

Causes

Demand Side

Supply Side

1. Increase in Money Supply

1. Higher Wage Rate

2. Deficit Financing

2. Higher Taxes

3. Increase in Public Expenditure

3. Higher Administered prices

4. Increase in Investment Expenditure

4. Supply Shocks

5. Increase in Export Demand

5. Hoarding

6. Increase in Population

Effects

 Effects on Production
1) Uncertainty in economy: Investment and production activities reduce
2) Affects patterns of production: Resources directed towards luxuries
3) Causes misallocation of resources: Hoarding
4) Encourages speculation: Quick and easy profits
5) Reduces degree of competition: Inefficient producers are protected

Effects on Distribution of Income

1) Debtors and Creditors: Debtors gain, creditors lose
2) Profit earners: Sharp profits
3) Wage earners and Salaried class: Lose
4) Investors: Big investors gain, fixed-interest investors lose
5) Pensioners: Lose
6) Farmers: As a group gain, small farmers lose

 Adverse effect on Savings: Reduced purchasing power

Effects on balance of payments: Imports increase, exports decrease
Effects on public revenue: More revenue earned from indirect taxes
Confidence in currency: Reduces
Social and Moral degradation: Burglary etc.
Political Instability: Major issue

How to Control
Inflation

Monetary Policy
1. Quantitative Credit Controls
Steps are taken by the BD Bank to reduce supply of money through credit
(a) Interest Rates (b) Open Market Operations (c) Variable Cash Reserve Ratio

2. Qualitative Credit controls

Central banks are persuaded or forced by BD Bank to limit loans given
(a) Rationing of credit
(d) Direct Action

(b) Moral Suasion

(c) Publicity

Income Policies
Also

called Direct Wage Control

Income in tune with production

Trade

unions make it difficult

Increasing Availability of Goods

Increase the production of essential consumer goods
Raw materials for such products may be imported
Latest technology must be used

Fiscal Policy
Public Expenditure: Reduce
Public Borrowing: Increase
Taxation: Increase

PRICE CONTROL AND RATIONING

Maximum prices of commodities are fixed

Goods are allocated to ration card holders

Encourages Black-Marketing

Thank You