Sunday, November 14, 2010

Stag-Inflation

Pakistan's Economy is uncertain; no growth, job cuts and super dooper inflation! In my previous blog  i've explained Phillips Curve which indicates that whenever inflation is high, there is growth and more employment opportunities but the present situation is completely opposite to that model.

We are seeing Higher Inflation at a time when our country is not growing, there are more job cuts, low GDP growth which is almost equal to our population growth rate. This situation can be refer as Stag-Inflation.

It is the situation when both inflation rate and the unemployment rate are high. It is a difficult economic condition for a country, because inflation and economic stagnation are occurring simultaneously, and until recently no macroeconomic policy had predicted this occurrence.

There is the inflation in the economy because of the money inflow, it means that government is spending money but on unproductive things which are not creating jobs or increasing the GDP size possibly because government is spending money on things like Security and in maintaining their lavish lifestyle.

So who to blame? Well i m going to blame the government which is spending tax payers money on unproductive things which are not creating jobs or increasing the GDP size; And, on the other hand they are pursuing policies such as increasing the taxes on Karachiites, increasing the power charges etc which is shaking the investors confidence.

IMF role here is also to be blamed which is forcing the government to reduce money supply in the economy at a time when the country is at war and facing numerous other challenges at the same time which is also shaking the investors confidence.

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