Assignment

Student Name: Muhammad Usman

Roll No. LL.B-SS-21-31

Topic 1: Inflation

Topic 2: Unemployment

Assingned by : Sir Ahmad Nawaz

 Inflation
Introduction:
Collective increase in the supply of money, in money incomes, or in prices refers
to inflation. Inflation is generally thought of as an undue rise in the general level
of prices.

Definition:
“Inflation is a situation whereby there is a continuous and persistent rise in the
general price level.”

According to Meyer:
“An increase in the prices that occurs after full employment has been attained.”

According to Ackely:
“A persistent and appreciable rise in the general level or average of prices.”

According to Crowther:
“In the state of inflation the prices are rising i. e., the value of money is falling.”

According to Coulbourn:
“In inflation, too much money chases too few goods.”

Situation in Pakistan:
Today, inflation is one of the serious problems faced by Pakistan. Rate of inflation
in Pakistan is very high. According to economic survey 2009-10, its rate is 13.3 %,
while it was 22.3 % in last fiscal year. According to ESP 2011-12, rate of inflation
(CPI) is 10.8%.
Explanation:
All above definitions are showing that inflation is a condition in which prices rise
and money value decreases. Due to inflation the real value of money i. e., the
purchasing power decreases.

TYPES OF INFLATION:
Following are the main types of inflation, which are different from one another
due to their causes:

1) Demand Pull Inflation

This is demand side inflation. It simply means that when there is an increase in
aggregate demand. Without any corresponding increase in aggregate supply the
price level will rise.

2) Cost Push Inflation

It is supply side inflation. If there is increase in prices it will results in fall in
aggregate supply. It is the reason of increase in cost of production.

3) Structural Inflation
Sometimes prices rise in an expanding economy because the supply cannot keep
up with rising demand because of structural inflexibilities. This is also called the
Structuralist Argument for inflation.

4) Imported Inflation
In such inflation local governments are helpless; it is due to an increase in the
prices of imported goods. To control it government may bans the imported items.

5) Open Inflation
If there is no control over rise in prices, it will be determined by free forces of
demand and supply.

6) Suppressed Inflation
If prices are subject to governmental control then their increase is made by the
government action.

7) Ex-ante & Ex-post Inflation

Ex-ante inflation is the expected inflation and ex-post is the actual inflation. For
example, if people of Pakistan expect an inflation rate of 10% it will Ex-ante
inflation but actual inflation is 7 % it will be ex-post.

8) Anticipated Inflation
If the actual rate of inflation is perfectly in accordance with the people’s
expectations it is called anticipated inflation.

9) Unanticipated Inflation
If the actual rate of inflation is not according to the people’s expectations, it is
called unanticipated inflation.

10) Profit Inflation

Profit inflation is the result of the greed of businessmen. It usually occurs in such
economy, which are dominated by monopolies.

11) Deficit Inflation

Government has to borrow form banks and non-bank & internal and external
resources in case of deficit financing. It also caused inflation named as deficit
inflation.

12) Devaluation Inflation

Devaluation also leads to inflation. Devaluation decreases the purchasing power
of our currency that results in inflation.

13) Ceiling Inflation

Inflation that occurs due to various prices ceiling enforced by government. Price
ceiling are set by government to maintain prices of certain essential goods at a
determined level.

14) Income Inflation

If there is an increase in income of the people, it will increase the money supply in
the country that leads to income inflation.

CAUSES OF INFLATION IN PAKISTAN

Causes of inflation are of two types:

A. INCREASE IN DEMAND:

1) Increase in Money Supply

The major cause of increase in the price level is an increase in money supply. It
may be due to increase in currency or credit money. Increase in the stock of
money induces people to demand more and more of goods and services.

2) Increase in Velocity of Money

According to the Fisher’s Quantity Theory of Money, if there is an increase in the
velocity of circulation of money it also leads to inflation.

3) More Investment
Investments also play an important role in producing inflation. At the moment of
investment the economy’s stock of wealth and money expands and it result is in
inflation.

4) Non-productive Expenditures
Government of Pakistan has to make a lot of non-productive expenditures like
defence etc. Such unproductive expenditures lead to the wastage of economy’s
precious resources and also lead to inflation.

5) Corruption & Black Money

Corruption and black money leads to increase in aggregate demand, which is
cause of inflation. These evils increase aggregate demand and import volume.

6) Deficit Financing
Deficit financing is another cause of inflation. It increases the money supply and
leads to inflation.

7) Foreign Remittances
Increase in foreign remittances is increasing the money supply in our country.
Increase in money supply leads to inflation.

8) Foreign Aids
Foreign aids are also a source of mobilization of resources form rich countries to
poor countries. It is also a cause of inflation in Pakistan.

9) Consumption Trends
Due to demonstration effect people of our country want to copy the styles of
people of rich countries. In this way there is an increase in consumption trends
that leads to inflation.

10) Population Bomb

Population of Pakistan is increasing day by day. Increasing population demanding
more and it creates inflation.
B. DECREASE IN SUPPLY:

11) Slow Agricultural Development

Low growth rate of agricultural sector caused in shortage of productivity. It results
in low supply and increase in price level.

12) Slow Industrial Growth

Our industrial sector is not at developed form due to use of backward techniques
of production. Its less production also creates shortage in market and caused in
inflation.

13) Increase in Wages & Salaries

Now labour is demanding more wages and salaries. Increase in wages and salaries
leads to increase in cost that increases the prices. On the other hand due to more
wages and salaries there is an increase in income and it caused in inflation.

14) Increase in Prices of Imports

Increase in the prices of imports also leads to creation of inflation. If there is an
increase in the prices of oil and other imported raw material then it will cause to
reduction in supply.

15) Devaluation
The value of our currency is decreased due to devaluation. It makes imported
goods more expensive and it leads to shortage of supply.

16) Indirect Taxes

The imposition of indirect taxes is a reason for increase in prices. Sometimes
government imposes taxes on some particular commodities. In this case producer
may start to decline the production of those goods.
MEASURES TO CONTROL THE INFLATION
Following measures are suggested to control high inflation:

1) Increase in the growth rate of output

2) Government should control the supply of money through effective monetary

policy

3) Highly increasing unproductive expenditures must be control

4) Government should check the corruption first to eliminate the inflation

5) Control on population is also necessary to control inflation

6) Reduction in budget surplus

7) Reduction in monetary expansion

8) Effective tax system will be helpful to control the inflation

9) Improvement in balance of payment

10) Developments of agricultural and industrial sector will helps to control the
inflation.

EFFECTS OF INFLATION
Following are GOOD EFFECTS of inflation, if rate is 2% to 4%:

1) There is increase in production due to inflation.

2) Inflation increases the employment opportunities in the country.

3) Inflation enhances the process of economic development.

4) There is more investment in country at the time of inflation.

5) Inflation increases the economic activities that may cause to inventions and
innovations.

6) Profit of the producers also increases when there is normal inflation.

Following are the BAD EFFECTS of inflation:

1) It is a huge problem for employees, taking fixed salaries.

2) It generates unfair distribution of income and wealth.

3) Inflation reduces the saving of the population.

4) It is a cause of unfavorable balance of trade and payment.

5) Inflation increases the rate of interest.

6) It creates a lot of social evils.

7) It is difficult for consumers to purchases more goods.

8) It generates very bad effects on the poor labour force.

9) Inflation reduces the living standard and purchasing power of people.

10) It is harmful for creditors.

11) Inflation reduces the purchasing power.

Unemployment
INTRODUCTION:
The condition of one who is capable of working, actively seeking work,
but unable to find any work is called by unemployment. It is important
to note that to be considered unemployed a person must be an active
member of the labour force and in search of remunerative work. The
labor force is the actual number of people available for work;
economists use the labor force participation rate to determine the
unemployment rate. Unemployment, also called joblessness, occurs
when people are without work and are actively seeking employment.
Unemployment is measured in order to determine the unemployment
rate. The rate is a percentage that is calculated by dividing the number
of unemployed individuals by the number of individuals currently
employed in the labor force. Short-term unemployment is any period of
joblessness that lasts fewer than 27 weeks. Long-term unemployment
lasts 27 or more weeks. Youth unemployment refers to the youth
labour force aged between 15 to 30 years.

DEFINITION:
“Unemployment is a situation where people of a country are willing to
work, able to work but cannot find jobs.”

According to Samuelson:
“Unemployment occurs if there are qualified workers who would be
willing to work at prevailing wages but cannot find jobs.”

Unemployment Situation in Pakistan:

According to Economic Survey of 2017-18, population of Pakistan is

199.1 million. Total labour force is about 63.6 million out of which 59.6
million is employed and remaining 4.0 million is unemployed. Rate of
male unemployment is 6.3 % and female unemployment is 9.3 %.

MEASUREMENTS OF UNEMPLOYMENT:

In order to find the rate of unemployment, four methods are used:

1. Labor Force Sample Survey:

It provides the most comprehensive results. It calculates
unemployment by different categories such as competition and gender.
This method is the most internationally comparable.

2. Official Estimates:
It combines information from the three other methods. The method is
not the preferred method to use when calculating the rate of
unemployment.

Calculating Unemployment

According to Economic Survey of 2017-18, population of Pakistan is

199.1 million. Total labour force is about 63.6 million out of which 59.6
million is employed and remaining 4.0 million is unemployed. Rate of
male unemployment is 6.3 % and female unemployment is 9.3 %.
With the unemployment rate being the percentage of people in the
labour force who are unemployed, using the numbers in our example
and the equation below, the unemployment rate is calculated as 6.3
per cent.

The unemployment rate is affected by changes in the number of

unemployed people (the numerator), which can result from cyclical
factors, such as the number of people who become unemployed
because of an economic recession, or more structural factors in the
economy. The unemployment rate is also affected by changes in the
size of the labour force.

TYPES OF UNEMPLOYMENT:

Concept of unemployment may be clear from the following types:

1- Employment
Employment means that a person is willing to work, able to work and is
working.

2- Unemployment
Unemployment is a condition of one who is capable of working, actively
seeking work, but unable to find any work. Rate of unemployment is
5.6 % in Pakistan during 2010-11.

3- Casual Unemployment
Casual unemployment arises when demand for labour is irregular.

4- Cyclical Unemployment
Such type of unemployment is the result of fluctuations in the trade
cycle.

5- Frictional Unemployment
When a worker is searching for a job or transitioning from one job to
another. Frictional unemployment is always present in an economy.

6- Seasonal Unemployment
It is caused by fluctuations in demand that occur regularly at certain
times of the year.

CAUSES OF UNEMPLOYMENT
Main causes of unemployment are as below:

A. ECONOMIC CAUSES

1) Low Industrial Growth Rate

Low industrial growth rate is 1.7 % in Pakistan. Number of industries is

not increasing in Pakistan. Lack of industries means less opportunities
of employment.

2) Use of Advanced Technology

A poor country uses backward techniques of production and labour
intensive technologies. But when it uses the advanced technology there
spread more unemployment in the country.

3) Mechanization of Agriculture
Due to mechanization of agriculture there is less use of labour in
agricultural sector. These unemployed persons move to cities to find
jobs at less wage rate. Accordingly, use of modern techniques in
agricultural sector is also a further cause.

B. SOCIAL CAUSES

4) High Population Growth Rate

The population of Pakistan is increasing at a rate of 2.1 %. Due to this
high rate about two million people enter into the labour market each
year. Such huge labour force cannot be provided jobs due to backward
economic condition.

5) Illiteracy & Literacy

Illiteracy and literacy both are the causes of unemployment in Pakistan.
Due to illiteracy people are not able to work and they remain
unemployed. On the other hand number of educated is increasing
annually but government is unable to create employment opportunities
e.g., students of B. Com. are increasing at very fast speed but they
cannot find jobs and admissions for higher education. Rate of illiteracy
in Pakistan is 42.3 %.

6) Rural-Urban Migration
There is rural-urban migration due to farm mechanization. there is
already unemployment in cities these workers create more
unemployment and under employment in cities.

C. FINANCIAL CAUSES

7) General and Absolute Poverty

Poverty is also a serious cause of unemployment. Poor persons due to
lack of income has low saving and shortage in investment. So, they are
unable to established self-employment opportunities.

8) Deficiency of Capital
There is shortage of capital that leads to low level of saving and
investment in Pakistan. It results in low rate of capital formation and
caused in unemployment.

9) Lack of Credit Facilities

It is so difficult to manage the personal business and self-employment
due to absence of easy credit facilities. Accordingly, shortage of credit
facilities is also a main cause of unemployment.
EFFECTS OF UNEMPLOYMENT
Exploitation of labour.
Due to unemployment labourers are exploited. They have to accept low
wages and work under un-favourable conditions.

Industrial disputes.
Industrial disputes arise because of unemployment. It has adverse
effects on employer-employee relations. Due to industrial disputes, the
unemployment rises.

Political instability.
There is political instability in the country due to unemployment.
Unemployed persons engage themselves in destructive activities. They
consider Govts, worthless. Economic development becomes difficult
under conditions of political instability.

Social problem.
Many social evils like dishonesty, gambling and immorality etc. arise
due to unemployment. It endangers law and order situation of the
country. It causes social disruption in the society.

Increase in poverty.
Under the situation of unemployment a man has no source of income.
Unemployment causes poverty. Burden of debt increases. Economic
problems increase.
Loss of human resources.
Due to unemployment, human resources go waste. No constructive use
of labour force is made. If human resources are properly used,
economic growth of the country will increase.

* Depression among the citizens of the country which may cause

increase in the suicide rate.

12. Chances of political upsurge and instability caused due to

disappointed and frustrated public.

* Decrease in the GDP (Gross Domestic Product) of the country.

* Increase in the crime rate. Social evils like drug addiction may rise.
* Waste of valuable human resources of the country.
* Migration of population to other countries in search of employment.