Relationship between Inflation and Interest Rate

Synopsis of the course

Economic Analysis
For
Managers
MBA-E





SUBMITTED TO: SUBMITTED BY:
Sir Tehseen Iqbal Faizan Ahmed Khan 3646
Syed Faizan Tahir 3655






Introduction
The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use
of Assets. Interest are typically noted on an annual basis. Inflation and Interest rate are linked.
Inflation refers to the rate at which prices for rises. In Pakistan, interest rates the amount of
interest paid by a borrower to a lender are set by the State Bank. In general, as interest rates are
lowered, more people are able to borrow more money. The result is that consumers have more
money to spend, causing the economy to grow and inflation to increase. The opposite holds true
for increasing interest rate. As interest rates are increased, consumers tend to have less money to
spend. With less spending, the economy slows and inflation decreases.
Problem analysis and literature review
The basic problem is the time constraint that may affect the outcome of the research. Other
problem is that some people does not reply correctly to the research questionnaire. Some time we
dont get the related articles to our topic on which the research is based. A critical review of the
subject being addressed involves
(i) identification of relevant literature through a thorough and systematic literature search
using combinations of relevant key words in appropriate databases
(ii) the relevant literature must be critically read, meaning that the soundness of research
approach and conclusions must be Evaluated.

Objectives
The objective of this study is to find the possible solutions to keep balance between both
Macroeconomics Indicators. The inflation affects will also be determined and discussed and will
find the solutions to tackle with the increased inflation. And then the relationship analysis will be
done to analyze the relationship between these two economic indicators.

Hypothesis
H
o =
Inflation and Interest rate is directly proportional to each other
H= Inflation and Interest rate is inversely proportional to each other



Methodology / Tools
Analysis on trend of Interest rate of different countries
Analysis on trend of inflation of different countries
Comparing Pakistan with other neighboring countries
Literature review of different articles and past researches on this topic
Analysis of solutions provided by different researchers

Conclusion
In the end we will conclude on the basis of the outcome of the complete study and will find the
possible solutions to reduce the rate of both economic indicators interest and inflation.