Aisyah Rosman Nor Hana Jaafar Nurhidayat Ahmad Fatin Nabilah Suboh Siti Norfatin Afiqah Ismail Nur

Fatimah Zaharah Sulaiman

Definition : Persistent and rapid increase in general price of goods and services Measured using CPI, PPI, HPI Inflation rate = (CPI1 CPI0) / CPI0 Increase in Inflation leads to reduce of value of money

How to measure

CPI
Food Beverages & tobacco Clothing & footwear Gross rent, fuel & power Misc g & s Transport & communication Medical care & health expenses

PPI
Food & live animals Crude materials Manufactured goods Animal, vegetable, oils & fats Machinery & transport equipment

HPI
Terraced

Semi detached
High rise unit Detached

Mineral fuels, lubricants & related material

Recreation, entertainment, education and cultural services Furniture & furnishing, and household equipment and operation

 INCREASE in DEMAND INCREASE in PRICE Aggregate supply cannot meet excess in demand at full employment Causes:
Expansionary monetary policy
Increase in money supply

Expansionary fiscal policy

Increase in government expenditure

Demand increase from AD1 to AD2 Price of goods and services increase from P1 to P2

Price Level AS

P2 P1

AD1
Q1 Q2

AD2

National Output

 INCREASE Cost of Production DECREASE in Aggregate Supply Causes:

Increase in production cost Greed for profit Decrease in aggregate supply (supply shock inflation

Aggregate supply decrease from AS1 to AS2

Price Level AS2 AS1

P2 P1

AD National Output Q2 Q1

1) Changes in Income and Wealth Distribution

Gross Domestic Product Cost of living , fixed income earners lose Non fixed income earners will gain profit Consumers savings depreciated in value Business savings (properties) will increase

2) Savings and Investments

Effects of Inflation (cont.)

3) Trade and Union Wages
Wage Spirals

4) Cost of production of goods 5) Inflations and International Trade

prices of exported products Price of imports cheaper Exchange rates Price of countrys currency in other currency

1) FP budget surplus 2) MP contractionary 3) Direct methods

Directly control the price : maximum price (enact legislation) Increase production capacity : giving subsidies. Control wage rate :instituting law @ regulation Government launch anti hoarding campaign : prevent shortage of food and unnecessary price increase.

 The group that lose will be :

Creditors : reduction in purchasing power(when loan repaid) Wage earners/employee : real value of income fall(depend on increment given by employers) Pensioners : their income does not increase at all.( value of their income fall) Savers : depend on rate of interest

 The group that gains will be

Businessman : increase profit since price are high Debtors : purchasing power of money fall ( pay back their loan) Property owners : price of property increase Shareholders : higher price lead to higher profit of the company and subsequently higher dividends

 Definition: people under labor forces and currently not working but actively looking for a job Labor forces :
age 15 64 Willing & able to work Includes school leavers & pensioners

Unemployed voluntary & involuntary

eg : job losers, job leavers, retirees

Not in labor force unwilling to do work

eg : handicaps, old man, sickbed, housewives, students

1) Frictional
Temporary out of work

2) Structural
changes in economy or technology L need extra skills & experience

3) Cyclical
due to recession @ depression

4) Disguised (underemployment)
People working but contribute nothing 10 people work for a job can be done by 5 people

5) Seasonal due to changes in season

1) Indvidual may lead to social problems

Loss self esteem Depresses Mentally disturbed

Less income Have to reduce expenses Productivity falls, GDP falls, economic growth falls Tax revenue decrease

2) Family leads to family problems

3) Country leads to under-utilization of resources

1) Fiscal Policy 2) Monetary policy 3) Direct methods

Provide training & courses Information on job vacancies Provide further studies & tertiary education Education system suitable with economic development