INFLATION BY Kokab Manzoor AND UNEMPLOYMENT Chapter # 5

2 Overview Inflation 1.Meaning and concept to Inflation 2.Kinds & causes of Inflation 3.Measures to Control Inflation Unemployment 1.Meaning 2.Causes of Unemployment 3.Consequences of Unemployment 4.Remedial Measures

Definition of Inflation Generally inflation means a process of rising prices. Technically speaking inflation means a persistent rise in the general price level in a country over a period of time.

Types of inflation: Caused by the consumers Types of inflation Caused by the Producers Demand pull inflation Cost push inflation

1Demand pull inflation:  It is a situation where the aggregate demand persistently exceeds the available supply of output at a current prices which causes the general price level to go up.  Means the demand is high in the market but supply is less, so the sellers would increase the price of products.

Causes of Demand Pull Inflation: The following are the main causes of demand-pull inflation: 1.Population growth: Rapid increase in population means more demand for goods. If the rate of growth of population is more than the rate of growth of goods, prices will start rising. 2.Deficit Financing: When the budget is deficit and the government expenditure is in excess than the revenue. Government prints new currency notes which increase the supply of money in the country and thus causes increase in prices.

3Increase in wages: The rise in wages, salaries and pensions has increased the purchasing power of the people which caused inflation. 4Foreign Remittance: Those who are working abroad in other countries send dollars, pounds, Euros etc to their families which increases the purchasing power of those families. Therefore, foreign remittance is a major source of inflation in any country. Causes of Demand Pull Inflation:

5Construction of Houses and Colonies:- The construction of houses and colonies has brought a big hike in the prices of bricks, cements, steel etc. 6Lavish Spending on Ceremonies: The people of developing countries spends a lot of money on ceremonies like wedding, Eids, Jeshn-e-noroz etc Causes of Demand Pull Inflation:

2Cost push inflation:  If in an economy, price level rises due to increase in cost of production, it is given the name of cost push inflation. OR  It is a situation where a rise in the general price level is initiated and sustained by rising cost due to which prices go up.

Causes of Cost-Push Inflation: The following are the main causes of Cost-Push inflation: 1.Increase in Cost of Raw Materials: When the prices of raw materials increases this increase the cost of production of the producer and the producer increases the price of the product. 2.Increase in wages: The rise in wages increases the cost of production which increases the price of the product.

3Decrease In production: Changes in the volume of production, has inverse effect on price level. If in some situation such as floods, war or political disturbances, production of goods falls, prices tend to rise. 4Imported inflation: Sometimes a country has to face inflation because it imports goods from other countries at continuously rising prices. Causes of Cost-Push Inflation:

5Indirect taxes: Indirect taxes also push up prices of goods. when the government imposed the sales tax on the commodities like oil, gas, electricity, telephone, food products etc the prices goes up in the market. Causes of Cost-Push Inflation:

Measures to control inflation Three kinds of measures are used to control inflation. 1.Monetary policy 2.Fiscal policy 3.Direct measure

1.Monetary policy: Monetary Policy is the policy which is adopted by the central bank of a country. The central bank of a country works in two directions to reduce inflation: i) Central Bank reduces the money supply in Circulation. In this method the central bank sell govt. Bonds & Securities to commercial banks. Thus the money with commercial banks reduces and their ability to advance loans to people reduces. Control inflation (continued).....

ii) Secondly the central bank rises its interest rate for the commercial banks. The commercial banks do not take loans from the central bank on high interest rate and are thus unable to provide loans to the people. Thus the control on credit reduces the purchasing power of the people and inflation is controlled. Control inflation (continued).....

Control inflation (continued) Fiscal policy: The policy of changing of federal government spending and taxes in order to control inflation in the country is known as fiscal policy. So government take following steps to control the inflation in the country.

aDuring inflation, the govt. tries to reduce its expenditures on unproductive activities. b Government increase the direct taxes to discourage the consumption thus aggregate demand for goods falls and inflation is controlled. Control inflation (continued).....

3.Direct measure: Apart from the monetary and fiscal measures we also have other measures to curb inflation. it includes: a Increase in agriculture output: Inflation can be controlled by increasing the agricultural output. Using the modern technology, better quality of seeds and fertilizer can increase the agriculture productivity. Also more agricultural land can be brought under cultivation using the modern technology.

b. Price control Committee: Inflation can be controlled in the country by government by fixing the prices of the commodities and giving the price control list to the shopkeepers and force them to follow the list otherwise they will be fined. Control inflation (continued).....

UNEMPLOYMENT its Causes, Consequences and Policy Measures

Unemployment : Unemployment refers to the situation where the population of a country do not find work to earn their livelihood. The currently 40% of Afghanistan population is unemployed.

Causes of Unemployment: 1Increase in Population:- The high birth rate in country leads to population explosion in the country. When population increases this leads to unemployment and poverty. 2Rural- Migration:- Migration from rural areas to urban areas increases the population size in Urban areas. The number of available jobs are less than the available human resources which causes unemployment in the cities.

3Downsizing:- Due to the downsizing of the public sector most of the people are laid off. This is also one of the main cause of unemployment. 5Lack of Credit Facility:- Due to the non-availability of credit facility in country most of the peoples can not start business and they therefore remains unemployed. Causes of Unemployment:

6Seasonal Variations: There are many industries which produce the goods seasonally like Ice factory. These industries work only for few months and then remain close in the remaining period of the years. So a large number of people who are engaged with these industries remain unemployed. Causes of Unemployment:

7Technological Advancement: Absorption of persons in large-scale industries due to the installation of improved automatic machinery, has gone down. This had led to increase in the unemployed labor force in the country. 8Lack of Skill and Work Experience: Majority of people do not have any skill about any particular job. Or if they have the skill they have no working experiences so they can not get the job. Causes of Unemployment:

9Lack of Education:- Those who do not have enough education remains unemployed in the country because without education they can not find work in organizations. 10Out-dated Curriculum:- The outdated curriculum creates the mismatch between educational outcomes and skill demand in the market. Causes of Unemployment:

11Lack of Mobility : Many of the people remain unemployed due to the lack of mobility. Employment opportunities may be available in other parts of the country but due to their immobility they remain unemployed. 12Lack of Information: Most of the people remain unemployed due to the non-availability of information about employment opportunities. Causes of Unemployment:

Consequences of Unemployment :- Rise in Criminal Activity and Violence Unemployment leads to increase in criminal activities like robbery and snatching purses etc. Drug Addiction:- Unemployment creates disappointment in the young people due to which they start using drugs. Civil Disorder (terrorism):- Young unemployed men are prime candidate for recruitment as soldiers in any civil dis-order.

Remedial Measures: Control on population:- There should be an effective check on the population growth. Family planning Programs should be introduced and population should be reduced according to the size of natural resources. This will greatly help in reducing the pressure from the supply side on the labor market. Establishment of Small Scale Industries:- The small scale industries are to be promoted by providing liberal credit facilities. This will increase employment potentially in the country..

Vocational and Technical Training Centers:- Vocational and Technical training centers should be established to provide training and skill to the public. It will be very helpful in curtailing the unemployment. Encourage Construction Industry:- The construction of house, roads should be encouraged in the private sector. This will create more jobs in the country. Remedial Measures:

Internship Programmes:- Most of the people remains unemployed because they have no work experience. Govt. should start national internship Programmes for graduates and postgraduates students so that they can get enough experience of working in an office. Remedial Measures:

Overseas employment Opportunities: On the government level, the overseas employment and Exchange office should find jobs for the people of the countries in the other countries of the world. This will reduce the unemployment in the country. Remedial Measures:

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