macro assingement

8/2/2019 Macro Assingement

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Inflation and Unemployment which one is more harmful for Bangladesh ?How to solve the problems of unemployment and

inflation ?

Unemployment:

Unemployment is defined as a situation where someone of working age is not able to get a job butwould like to be in full time employment. An economic condition marked by the fact that individualsactively seeking jobs remain unhired. Unemployment is expressed as a percentage of the totalavailable work force. The level of unemployment varies with economic conditions and other circumstances.

Inflation:

Inflation is on a rising trend and unemployment rate is also increasing in recent years which implythat the strategies and policies of the government to achieve 8 percent GDP growth rate by FY 2014-15 need re-working to address these problems for bringing the economy on track to achieve the

target. Unemployment is a great concern in Bangladesh. Every year hundreds of thousands studentare coming out from college and university. Only a tiny fraction of total jobless is managed by differentgovernment offices and private organization but a majority remain unemployed. Besides that, theeconomy of Bangladesh has been suffering from a double-digit inflation.

Example of inflation:

The Retail Price Index surveys changes in the prices of goods and services.

GOODS 2010 PRICE 20111 PRICE CHANGE

CDs 9.00 9.50 0.50

Sweets 0.20 0.25 0.05

Bread 0.80 1.00 0.20

Total 10.00 10.75 0.75

INFLATION 0.75 or 7.5%

In the above example prices have gone up by taka 0.75 or 7.5%

ADVERSE IMPACTS OF INFLATION AND UNEMPLOYMENT

Adverse Impacts of Inflation in Bangladesh:

Most effects of inflation are negative, and can hurt individuals and companies alike, below are a list ofnegative effects of inflation in Bangladesh:

a. Uncertainty. Future prices are unknown, making it difficult to plan investment andconsumption decisions. This means that some production will not be undertaken because firmsare not certain about profitability.

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b. Shorter time horizons. Due to uncertainty over prices, firms and consumers are lesswilling to commit to long-term plans, like a 30-year mortgage, or building a new housingdevelopment over 10 years. Again, production falls due to uncertainty.

c. Price inflation has immense effect on the Time Value of Money (TVM). This acts asa principal component of the rates of interest, which forms the basis of all TVM calculations.The real or estimated changes occurring in the rates of inflation lead to changes in the rates of interest as well.

d. Hoarding. Inflation compels some business men by hoarding food and other commodities creating shortages of the hoarded objects.

e. Decrease in the purchasing power .The most immediate effect of inflation is the

decrease in the purchasing power of money. Peoole must keep paying higher priches for the

same quantites of goods and services they had before.

f. Increased Risk Higher Uncertainties. Bangladesh does not possess conducive

political environment for growing industries and inflation accentuates these risks by making the

market more instable.

g. Inadequate capital fund . Due to continuous inflation our national savings are

decreasing day by day because cash decrease in value day after day, so our national capital is

being highly affected by inflation.

h. Illusions of Making Profits. Many companies in Bangladesh are out of the business

because of they were making profits while in reality they’re losing money.

j. Causes an Increase in Tax Bracket. Presently the taxes are higher due to inflation in

our economy.

k. Rising Prices of Imports. For this reason the price of our products and goods are

inflated and general people fail to buy to those with their present income source.

m. Turmoil in loan payment. Inflation changes the allocation of income. This exertsmaximum effect on the lenders than the borrowers at the time of persisting inflation, because

the loans sanctioned previously are paid back later in the form of inflated dollars.

Adverse Impacts of Unemployment in Bangladesh

6. Many bad impacts of unemployment are prevalent in our economy but some of them arediscussed below:

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a. Social and Psychological Impact. Idleness and lengthy periods of unemploymentmade our people rusty and less productive. High unemployment already has given birth ofcrimes, frustration in our society.

b. Political Instability. The high rate of unemployment is also responsible for politicainstability in our country.

c. Lost Production. The single largest cost of unemployment is lost of production

Unemployment is thus negatively related with GDP. It has been estimated that 1 extra point ofunemployment reduces GDP by 2 percent which is known as the Okun’s law. The Okun’s lawpostulates the following relationship between GPD and unemployment.

d. The Distributional Impact. Decreasing scope of employment is triggering the povertysituation and creating inequality. Therefore poor people are faced with a twin pressure of lossof income and scope of getting employed. In general, unemployment hits the poor peopleharder than the rich. (Ibid, p-2)

e. Lost Tax Revenue. The Government of Bangladesh is losing a large scale of revenuedue to increased unemployment. (Ibid, p-2)

f. The Exhaustion of Natural Wealth. Prolonged unemployment is causing seriousdeforestation in Bangladesh.

SOLUTION OF INFLATION AND UNEMPLOYMENT IN BANGLADESH

Approach to Solve the Inflationa Increased discount rate:

To control inflation central bank should increase the rediscount rate. It increase the cost ofborrowing funds for business and consumer spending.

b sale of govt: securities: Another method to check the inflationary boom is to resort to sales of government securities to thepublic by central bank. As the buying public purchases and pays for these government securities,the commercial banks’ reserves with the central bank are correspondingly reduced and they areobliged to adopt a restriction is credit policy in relation to business requirements.c Consumer credit control:This is a device, which is generally introduced during inflation to curb excessive spending on the partof consumers.d Higher margin requirements:Like the consumer credit control, this is also a method of selective credit control. The central bank inits pursuance of an anti-inflation policy may raise the margin requirements to higher levels.

e Taxation:Taxation acquires increased importance as an anti-inflationary weapon during an inflationary boom.The problem during inflation is to reduce the size of disposable income in the hands of the generalpublic in view of the limited supply of goods and services in the market. It is therefore, necessary totake away the excess purchasing power from the public in the form of taxesf Public borrowing:Public borrowing is another anti-inflation weapon, which is often utilized to contain inflationarypressures in the economy. The object of public borrowing is to take away from the public excesspurchasing power, which, if left free, would surely exert an

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upward pressure on the price level in view of the limited supplies of goods and service sin theeconomy. According to this plan, a certain percentage of the wages or salaries is compulsorilydeducted in exchange for savings bonds, which result in blocking purchasing power for a definiteperiod so as to control inflation.g Debt management:The existing public debt should be mange in such a manner as to reduce the existing money supplyand prevent rather credit expansion. Anti-inflation debt management usually requires the retirementor repayment of bank held debt out of a budgetary surplus. The idea is that the government out of a

budgetary surplus would retry the government securities held by commercial banksh Expansion of output:

Increased production is the best antidote to inflation because, as pointed out above, the inflationarygap arises partly due to the inadequacy of output. But it becomes rather difficult to increase output ata time of inflation because of the full utilization of resources. Therefore, steps should be taken toincrease the output of those goods, which seem to be extremely sensitive to inflationary pressures byshifting productive resources from the less inflation sensitive goods.

Probable Solution to Unemployment in Bangladesh

10. The probable solutions are set out as below:

a. Economic Growth. Faster economic growth is viewed as a means of generating more jobs.

b. Methods of Accumulation and Dissemination of Information on Available Jobsand Workers could be Improved.

In which job centers have a nationwide, integrated database of jobs, employers, and availableemployees. This type of database could reduce the time spent by an average worker on the

unemployment roll and thus reduce the unemployment rate.

c. Unemployment Agencies. Provide more training and education to theunemployed people. This could help improve computer skills and communication. Thesepeople will become more confident and employable. They could tighten their job search and

job acceptance requirements.

d. Improvements to the Education and Training. It could be provided to youngpeople, with a greater focus on vocational skills.

e. Government Intervention. Government may take steps to support to struggling

industries in order to try to save jobs. The Government needs to try to create demand in theeconomy. It could be as follows;

(1) Give grants to businesses to produce goods.(2) Have projects such as road building.(3) Cut interest rates to encourage spending.(4) Cut income tax to encourage spending.

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f. Population Control. Though the Government has taken many steps to reduce thepopulation of Bangladesh but still many rooms are left to articulate the matter in an effectiveway.

g. Education System. The education must improve to resist the unemployment.

h. Political Stability. Higher unemployment may lead to political unrest and makethe economic situation worse in this densely populated country. So, it is hard to suppor

contractionary economic policies

c. Massive Industrialization. If we watch towards Japan, Korea, Malaysia what wewill see? Due to Industrialization they have changed a lot. Without Industrialization no nationcan expect strong economic basement and solution of unemployment problem.

d. Incorporating Typical Industries. Especially Automobile and Electronics Industryare the major items to intensify a countries overall financial condition. Most of money is spentin these two sectors. Lot of population can be employed in these industries.

e. Ambassadors Influence. To intensify the overall industrialization our Ambassadors

who are employed in different countries specially Japan, Korea, Malaysia, Singapore can helpthe Government to adopt strong, effective, active and successful policy.

f. Proper Development Planning. . We have a lot of workforce and a lot of money in theBank. But due to lack in proper utilization and proper development planning we are staying inback. If we can take proper steps to obtain our economic growth, then we can remove ourunemployment problem.

g. Alleviation of Poverty. Alleviation of poverty can help greatly to reduceunemployment.

h. Linking the Markets. To reduce market gap we can increase the money flow andreduce the unemployment.

i. Creation of Cooperative Society. Sometimes creation of cooperative society can helpin reduction of unemployment.

j. Demand Side Solutions. Many countries aid the unemployed through social welfareprograms. These unemployment benefits include unemployment insurance, unemploymentcompensation, welfare and subsidies to aid in retraining. The main goal of these programs is toalleviate short-term hardships and, more importantly, to allow workers more time to search for

a job.

Opinion Which One to be the Most Harmful for Bangladesh

I would say that unemployment is worse than inflation, and here are the reasons why.

→High inflation can typically cause high unemployment, although high unemployment may not causehigh inflation.

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http://en.wikipedia.org/wiki/Unemployment_compensation






→When purchasing power is low, during high inflation, businesses need to reduce spending andreduce employment. When employment is low, businesses can borrow money to fund growth, whichcan cause inflation, and businesses can seek other, more organic methods of growth - such asincreased production and reinvesting profits, which avoids inflation.

→It seems that high inflation would be worse than high unemployment because it can entail highunemployment. Although, high inflation can be easier to correct - by limiting loans, whereas correctingunemployment with organic business growth can be a slow process that requires effort.

→ It appears to boil down to a question of if I would rather potentially have a job and no money (highinflation) or no job and no money (high unemployment).

→I would say that even though high inflation can entail high unemployment, high unemployment isworse than high inflation because it lowers the gross production of socity , it limits the opportunity for healthy financial living to a smalls number .

Again, I would say unemployment is worse than inflation

.

Conclusion:

Bangladesh has been suffering from a sort of economic growth stagnation with its GDP growing

between 5.0 and 6.8 per cent for the last several years. At this moment, we may adopt an

expansionary economic policy so that we can increase production, productivity and consequen

employment generation through higher investment. Inflation has to be reduced by increasing

productivity and supply and by decreasing average production cost. As a result, the overall national

production, per capita income, economic growth and employment opportunities will increase.It is not

so easy to solve all economic problems at a time from the economic point of view. Though it is one of

the major responsibilities of the Government to provide job to those young generation but the

Government has failed to meet the job demand among the large population. But we can minimize the

unemployment through some measures like massive industrialization, population control, upgrading

the education system, bringing political stability and Ambassadors’ influence etc. Though the

Government has taken many steps to reduce the population of Bangladesh but still many rooms are

left to articulate the matter in an effective way. We want to increase the overall production and

productivity to reduce the problem of unemployment and at the same time we also want to keep the

prices of the commodities under control.

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