د پیسو اقتصاد Monetary Economics

1. د پیسو اقتصاد Monetary Economics د افغانستان اسلامی جمهوریتد لوړو زده کړو وزارت د کندهار پوهنتون د اقتصاد پوهنځی مالي او بانکي څانګه کال ۱۳۹۷ By: abdullah ziarmal

2. INFLATION انفلاسیون By: abdullah ziarmal

3. DEFINITION • Inflation is a state of persistent rise in prices • A continuous rise of the general price level Note: this does not mean that all prices must be rising during a period of inflation –some prices may even be falling; but the general trend must be upward It is a process of rising prices & not a state of high prices By: abdullah ziarmal

4. Take percentage change from MV = PY %ΔM * %ΔV = %ΔP * %ΔY V and Y at full employment are constant • %ΔM = %ΔP : a 1% increase in the money supply causes a 1% increase in the general price level By: abdullah ziarmal

5. Measuring Inflation • Inflation is the rate of change in the price index • If the price level in the current year is ‘P1’ & in the previous year is ‘Po’, then inflation for the current year is • (P1 – Po)/ Po x 100 By: abdullah ziarmal

6. Why inflation is bad? • Inflation causes welfare loss for the people • inflation destabilizes of economic activities like savings, investment , employment, economic growth, etc. By: abdullah ziarmal

7. Types of Inflation د سختۍ او شدت له د مخي د انفلاسیون ډولونه غزیدونکي انفلاسیون قدم وهوونکی انفلاسیون غورځیدونکی انفلاسیون شدید انفلاسیون • Classification of inflation in terms of intensity • Creeping inflation (around 2%), • Walking inflation (around 8 – 10%), • Galloping inflation (40 –60% monthly), • Hyperinflation (> 60% monthly) By: abdullah ziarmal

8. ازاد انفلاسیون : د هغه ډول انفلاسیون څخه عبارت دی چي په د اجناسو او خدماتو مارکیټ کي د عرضې او تقاضا د میکانیزم په اساس منځ ته راغلی وي نه د حکومت او پولي ادارو د مستقیمي مداخلې په اساس . موقوف انفلاسیون : د هغه ډول انفلاسیون څخه عبارت دی چي د هغه د مخنیوي او ختمېدولو لپاره پولي او مالي پالیسیاني په کارلویږي . By: abdullah ziarmal

9. It’s Effects: • Suppressed inflation adversely affects the economy: • When the distribution of commodities is controlled, the prices of uncontrolled commodities rise very high. • (2) Suppressed inflation reduces the incentive to work because people do not get the commodities which they want to have. By: abdullah ziarmal

10. (3) Controlled distribution of goods also leads to misallocation of resources. This results in the diversion of productive resources from essential to non-essential industries. (4) Frictions increase in the labor market when high inflation is associated with higher unemployment. (5) Suppressed inflation leads to black marketing, corruption, hoarding and profiteering. It invites extra­legal powers of control. By: abdullah ziarmal

11. Other classifications of inflation Structural inflation • Structural inflation is the one prevailing in most developing countries. The situation is due to the operation of the structural weakness (supply bottleneck, lack of infrastructure, etc.) existing in a developing economy. Lack of adequate supply responses or production to increase in demand is the cause of structural inflation. • Structural inflation occurs due to inherent problems in the economy's way of functioning- such as, lack of markets for producers to sell, eg high food prices in India are partly due to structural reasons. Another example is the lack of investable capital which makes the economy unable to meet demand etc. By: abdullah ziarmal

12. Stagflation Stagflation is a hybrid of inflation and stagnation. Stagnation is very low economic growth. Usually inflation is accompanied growth of the economy. In this sense, stagflation is a paradoxical situation. Since both inflation and stagnation are undesirable economic conditions, stagflation is double pain for the economy. سټګپلیشن دهغه حالت څخه عبارت دی کوم چي یو هیواد کي د قیمتونو سطحه لوړه روانه وي او داقصتادي ودي نرخ نزولي سیر سره مخ وي . By: abdullah ziarmal

13. Skewflation • Skewflation means the skewness of inflation among different sectors of the economy — some sectors are facing huge inflation, some none and some deflation. • دغه حالت کي د یو هیواد مجموعي قیمتونه متفاوت حالت لري په ځینو سکتورونو کي د جنس او خدمت قیمت د لوړ انفلاسیون سره مخ وي خو په نورو سکتورو کي بیا د جنس قیمت زیات ټیټ وي . By: abdullah ziarmal

14. Classification in terms of origin • Cost -Push inflation • Cost-push inflation occurs when firms respond to rising costs by increasing prices in order to protect their profit margins. There are many reasons why costs might rise: • Component costs • Rising labor costs • Expectations of inflation • Higher indirect taxes • A fall in the exchange rate • Monopoly employers/profit-push inflation By: abdullah ziarmal

15. Cost -Push inflation By: abdullah ziarmal

16. Demand- pull inflation- • Demand pull inflation is caused by increased demand from the consumers. It is often described as increase in demand without adequate increase in supply of output. In other words demand pull inflation occurs when aggregate demand is growing at an unsustainable rate leading to increased pressure on scarce resources. د هغه ډول انفلاسیون څخه عبارت دی کوم چي د تقاضا په زیاتوالی سره منځ ته راځي . By: abdullah ziarmal

17. Main causes of Demand-Pull Inflation د پیسو زیاتوالی د کرنسي بې ارزښته کیدل د حکومتونه لوړ مصارف سریع او چټکه اقتصادي وده نورو هیوادونه کي • Increased Money supply • A depreciation of the exchange rate • Higher demand from a fiscal stimulus • Fast growth in other countries By: abdullah ziarmal

18. Other types of price level movements • Disinflation • Disinflation is the slowing rate of inflation. Disinflation condition indicates that the inflation rate is coming down marginally over a short term. Disinflation is different from deflation. Deflation is decline in prices, whereas disinflation is decline in inflation rate. By: abdullah ziarmal

19. Reflation • Reflation is stimulating the economy by producing inflation. It is done by increasing money supply or by reducing taxes. The reflationary exercise is often made by the government and the central bank is done to bring back the economy from recession. In effect, reflation is the opposite of disinflation. By: abdullah ziarmal

20. Deflation • Deflation is the opposite condition of inflation. It is general decline in prices; often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in expenditure by government, consumers or business people. Deflation produces many side effects. The major one is that it is a disincentive for the producers. Because of the declined demand and lower investment, unemployment occurs in the economy. Gradually, deflation can worsen into a recession and depression. It is often said that among the two undesirables inflation and deflation; deflation is more dangerous. Hence, Central banks try to avoid severe deflation. By: abdullah ziarmal

21. Effects of inflation: د انفلاسیون تاثیرات • Effects on Distribution: Fixed income recipients lose (wage earners, salaried class, interest earnings from bank deposit, debentures, bond etc). Inflation is disincentive to the saving class. (Inflation is a tax on the saving class) Flexible income earners gain (Producers, traders, speculators etc.) Holders of money will lose. • Loss of returns: • creditors lose if π* > π • borrowers lose if π* < π • discourages productive activities. د عاید پر توزیع باندي د انفلاسیون تاثیرات : د انفلاسیون زیاتوالي او کموالي د وخت په تیریدو سره هغه خلګ چي نغدي پیسې لري د ګتي او تاوان سره مخ کوي . د لا وضاحت په موخه د انفلاسیون تاثیر پر پورورکوونکو او پور اخیستونکو باندي څیړو . By: abdullah ziarmal

22. Effect on creditors and debtors: Debtors gain, creditors will lose. Governmental will gain, since it is a big debtor. Effects on Production: inflation discourages saving encourages hoarding and speculative activities and hence By: abdullah ziarmal

23. Philip’s curve: The unemployment inflation trade-off • Philip’s curve shows a trade-off between inflation and unemployment. Unemployment can be reduced by accepting inflation. The concept has been developed out of a study made by British Economist William Philips on the British economy. The Phillips curve brings an inverse relationship between the rate of unemployment and the rate of inflation in an economy. د پلیف منحني په توسط سره د بیکارۍ او انفلاسیون تر منځ یو معکوسه اړیکه ښوول کیږي . دغه نظریه د یو بریتانوي اقتصاد پوه ویلیم پلیپس لخوا رامنځ ته سو. دده دغه نظري له مخي انفلاسیون چي په لنډ مهاله کي څومره زیاتیږي په عین شکل سره به بیکاري ورسره کمیږي او څومره چي کرنسي ارزښت پیداکوي هیوادونه کي به بیکاري زیاتیږي . By: abdullah ziarmal

24. By: abdullah ziarmal

25. The logic of Philip’s curve is the so called money illusion. During inflation, the real wage of the people declines, given the money wage. If the employers increases wage rate slightly, to accommodate inflation, the laborers may think that their wage has increased and hence many unemployed people will offer work. Thus unemployment decreases as a result of inflation adjustment. د پلیفس منحني په توسط سره داسي استدلال کیږي چي د انفلاسیو ن په وختو کی د خلګو حقیقي مزد کمیږي که څه هم په اسمي شکل سره دکاریګرو مزد زیاتیږي په حقیقي شکل نوي زیات سوی . دغسي وختونو کي د اسمي مزد زیاتوالی د کاریګرو د جلب سبب کیږي ، چي د بیکاري کموالۍ رامنځ ته کوي . By: abdullah ziarmal

26. Long run Phillips Curve د پلیپس منحني په ذریعه سره ښوول کیږي چي په اوږدمهاله کي بیکاري د انفلاسیون تابع نده بلکي بیکاري د کمولو لپاره نور عوامل موجود دي . په شکل کي د پلیپس درې منحنیاني داسي وضاحت ورکوي چي په لنډمهاله کي بیکاري د انفلاسیون د قیمت په زیاتیدو سره کمیږي او برعکس خو دا تاثیر بیا په اوږدمهاله کي نوي موجود، By: abdullah ziarmal

27. Measures to control inflation • •Monetary Policy Measures • Credit control • Demonetization • Issue of new currency • •Fiscal Policy Measures • Reduction in unnecessary expenditure • Increase in direct taxes • Decrease in indirect Taxes By: abdullah ziarmal

28. • Trade measures • Reducing import duties • Export control • •Administrative measures • Enhanced supply of food grains and through the public distribution system (PDS). • Maintaining Buffer stock. • Minimum Support Prices (MSPs) • Launch of specific programs for greater production of specific items. By: abdullah ziarmal

29. Sources of Gov’t Revenues • Taxes • Public Debt • Seigniorage or printing money: operates like an inflation tax on money holding as money loses real value . By: abdullah ziarmal

30. Fisher Effect • Define • i = nominal rate of interest • r = real rate of interest • π = inflation rate i = r + π r = i - π By: abdullah ziarmal

31. Quantity Theory of Money: a 1% increase in the money supply causes a 1% increase in inflation • Fisher Effect: a 1% increase in the inflation causes a 1% increase in the nominal interest rate By: abdullah ziarmal

32. Revised Fisher Effect • Define • i = nominal rate of interest • r = real rate of interest • π* = expected inflation rate i = r + π* r = i – π* By: abdullah ziarmal

33. Revised Demand for Money • (Md) = L(i, Y) where L is for liquidity • (Md) = L(r + π*, Y) • Money demand depends on the • real rate of interest (-) • expected inflation rate (-) • personal income (+) By: abdullah ziarmal