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…….