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Business Cycles,Inflation and Its Relationship

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Presentation on theme: "Business Cycles,Inflation and Its Relationship"— Presentation transcript:

1 Business Cycles,Inflation and Its Relationship
Izhar Ul Haq Majid Ali Nasir Rabbani Haris Shirazi Khubaib Haider

2 The Business Cycle Alternating increases and decreases in economic activity over time Phases of the business cycle Expansion Recession Depression Recovery LO1

3 The Business Cycle Trend Growth Peak Peak Peak Expansion Recession
Level of real output Recession Expansion Trough Recession Trough Time LO1

4 Causes & Measurement of Business cycle
Economic Disturbances Economic Policies Supply shocks Measurement LO1

5 Inflation Prof. Crowther defines inflation as; “a state in which the value of money is falling i.e. Prices are rising”. Prof. Samuelson puts it thus; “inflation occurs when the general level of prices and the cost is rising”. LO2

6 CPI = x CPI = x Inflation General rise in the price level
Inflation reduces the “purchasing power” of money Consumer Price Index (CPI) CPI Price of the Most Recent Market Basket in the Particular Year Price estimate of the Market Basket in = x 100 CPI 201.6 = x 100 = 2.8% LO3

7 Causes of Inflation Demand side Supply side LO3

8 Types of Inflation Cost Push Inflation
Rising imported raw materials costs Rising labor costs  Hoarding by traders and speculators Role of natural calamities War   LO3

9 Types of Inflation Demand Pull Inflation
Demand-pull inflation is likely when there is full employment of resources. In these circumstances an increase in demand will lead to an increase in prices. Reduction in direct or indirect taxation Depreciation of the exchange rate Rapid growth of the money supply  Faster economic growth in other countries Existence of Black Money Increase in population growth Reduction in the level of savings

10 Measurement of Inflation
LO3

11 Measurement of Inflation
Country 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 2011 Pakistan 6 5.2 4 3.9 4.8 9.1 7.9 7.6 20.3 13.6 13.4 11.9

12 business cycle and inflation
Relationship between business cycle and inflation LO3

13 Thank you…….


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