MACROECONOMICS:

 INTRODUCTION
 IMPORTANCE OF INFALTION
 DEFINITION AND TYPES OF INFLATION
 INFLATION CALCULATION
 CAUSES OF INFLATION
 EFFECTS OF INFLATION
 INFLATION OF GOODS AND SERVICES
 HOW DO WE CONTRIBUTE TO INFLATION
 STRATEGIES
 CONCLUSION
 RECOMMENDATIONS
 Economics ismaking most of life.
 Economics comprise of
Microeconomics: is the study of household and firms
Macroeconomics: is the study of whole economy
 Inflation is a key concept in macroeconomics, and a
major concern for government policymakers,
companies, workers and investors.
 High inflation is bad for the economy
 High inflation affects economics performance
 Moderate inflation could distort investment and consumption
 Reducing inflation has costs associated with the including lost output
and higher rates of unemployment.
 High rates of inflation harm consumers by affecting their standard of
living (Decline in standard of living)
 Inflation affects all aspects of the economy, from consumer spending to
business investment and employment rates.
 The rate at which the general level of prices of goods and
services is rising and, consequently the purchasing power of
currency is falling.
 Inflation is measured by Consumer Price Index (CPI),
 It reflects the annual percentage change in cost to an
average consumer acquiring a basket of goods that maybe
fixed or change at a specific interval.
1. Creeping Inflation
Creeping or mild inflation is when prices rise 3%
a year or less. It's actually beneficial to economic
growth.
2. Walking Inflation
This type of strong, or pernicious, inflation is
between 3-10% a year. It is harmful to the
economy because it heats up economic growth
too fast.
3.Galloping Inflation
When inflation rises to 10% or greater, it
wreaks absolute havoc on the economy
4. Hyper Inflation
This inflation happens when more
money is being printed.
Hyperinflation is when the prices
skyrocket more than 50% a month.
 Actual Previous Highest Lowest Dates Unit Frequency

6.60 6.80 23.16 -1.61 1978 - 2016 percent Quarterly

1.Finding the PNG CPI since 2009 – 2014
essential inflation
information
 Look up the
average price
of the several
products across
the few years.
 Load the Consumer Price Index (CPI)
 Choose the period of time for which
you will be calculating inflation.
 Find the price of the product you're
studying or the figure on the
 Find the price of the product or
consumer price index figure.
 Learn the inflation rate formula

 Plug the data into formula

 The Bank of Papua New Guinea uses
inflation to set interest rates. If the
Bank's Monetary Policy Committee thinks
CPI inflation will be above 2% in the next
two years or so, it may increase interest
rates to try to subdue it.
 Conversely if it thinks inflation is likely
to be below 2%, it may cut interest rates.
 DEMAND-PULL INFLATION
Occurs when aggregated demand increase results in a strong
consumer demand. And purchasing of the same good will
cause the price to increase.
 COST-PUSH INFLATION
Occurs when firms respond to rising costs by increasing prices
in order to protect their profit margins.
Cost-push inflation develops because the higher costs of
production factors decreases in aggregate supply (the amount
of total production) in the economy.
Depreciation of exchange rates
Deficit financing
Agricultural price policy by the
Government
Increase in administrated price
Taxes
Import
Increase in public expenditure
1. Reduces Purchasing Power
 - inflation decreases the purchasing power of a currency
due to a rise in prices across the economy.
 -meaning people need more money to buy the same
basket of goods and services they had purchased prior to
the rise in price.
 Example: An average price of coffee would cost you a lot
to buy.
2. ENCOURAGE SPENDING AND INVESTING
 Due to lots of money circulating around the economy:
 People will spend more
 Businesses and investors will invest more
3. CAUSES MORE INFLATION
 The urge to spend and invest tends to boost inflation, causing
the inflation rate to rise even more
4. LOWER THE COST OF BORROWING
 Companies and individuals borrow cheaply from the bank due
to low interest rates
5. REDUCES UNEMPLOYMENT
 Wages will change slowly in response to economic shifts
 Employers will employ more workers with the needed skills
6. INCREASE GROWTH
 - The boost to spending and investment leads to
economic growth
7. UNFAIR GAINS AND LOSSES
 Debtors gain, creditors and those on fixed income
losses
8. WEAKENS THE CURRENCY
 - When the currency fall against the trading
partners, it will be expensive to import.
1. Reducing purchasing power income
2. Decline in Living standard and those living in
poverty driven even further.
3. Social, Law and Order Problem
 Example: prostitution are most likely to increase.
 People buy cheaper and low quality food, their
health will suffer.
4. Increase in unemployment rate
5. Government comes under
pressure to control spending.
Many projects will be delayed or
postponed, some indefinitely. A
lot of frustration will ensue, with
MPs being branded liars.
 “COST OF LIVING” OR Cost of Living or
“STANDARD OF Living Standard
LIVING”
includes;
Cost that we spend in Food
order for survival.
Housing
Transportation
Taxes
Healthcare
 Even though Papua New Guinea is known to be
rich with many natural resources, our standard of
Living is still very poor. 85% of the country’s
population lives in rural areas. Most prices found
in Port Moresby city are very expensive. Because
most things like goods, machinery and other
products are imported into PNG from other
countries. Due to lack of Technology, Skills and
Qualifications and Resources.
Clothing And Shoes Avg.
1 Pair of Jeans (Levis 501 Or Similar) 75.00 K
1 Summer Dress in a Chain Store (Zara, H&M, ...) 150.00 K
1 Pair of Nike Running Shoes (Mid-Range) 224.00 K
1 Pair of Men Leather Business Shoes 250.00 K

Restaurants Avg.
Meal, Inexpensive Restaurant 27.50 K
Meal for 2 People, Mid-range Restaurant, Three-
152.50 K
course
McMeal at McDonalds (or Equivalent Combo Meal) 28.43 K
Domestic Beer (0.5 liter draught) 10.26 K
Imported Beer (0.33 liter bottle) 15.00 K
Cappuccino (regular) 8.26 K
Coke/Pepsi (0.33 liter bottle) 3.57 K
Water (0.33 liter bottle) 3.43 K
 Markets Avg.
Transportation Avg.
Milk (regular), (1 liter) 5.22 K
One-way Ticket (Local Transport) 1.00 K Loaf of Fresh White Bread (500g) 5.53 K
Rice (white), (1kg) 5.95 K
Monthly Pass (Regular Price) ?
Eggs (12) 12.03 K
Taxi Start (Normal Tariff) 12.50 K Local Cheese (1kg) 46.06 K
Chicken Breasts (Boneless, Skinless), (1kg) 23.56 K
Taxi 1km (Normal Tariff) 5.00 K Beef Round (1kg) (or Equivalent Back Leg Red Meat) 29.43 K
Taxi 1hour Waiting (Normal Tariff) ? Apples (1kg) 15.79 K
Banana (1kg) 5.08 K
Gasoline (1 liter) 2.80 K Oranges (1kg) 13.17 K
Tomato (1kg) 13.03 K
Potato (1kg) 9.47 K
Onion (1kg) 7.71 K
When Inflation occurs Prices of Cost of Living increases.
Transportation fees will increase – including the patrol
& diesel, food prices, healthcare cost will all be
increased – plus the government tax percent.
 People work to earn Income and Spend on Cost
of Living to satisfy their Needs & Wants. In
terms of purchasing Goods & Services.
• If your Income/savings account does not increase
with the inflation rate, the effect will be as though
you are losing money. And if it does increase with
the inflation rate – than you are likely to have
more money in your bank account during the
period.
 Retirees are often greatly affected by inflation
because they live on fixed Income. While their
pension income remains flat, the prices rises.
Note: Inflation affects both the Fixed Income
people and the Flexible Income people.

 When inflation occurs it reduces our

Spending Power.

 Money value decreases causing

goods and services to increase in
price.
 At first before the inflation you can walk in a shopping
mall with a 50 Kina and come out with at least a bag
full of groceries. But than when the inflation period
strikes, that 50 Kina will not be 50 Kina- it will lose its
value, it will be more like 20 to 10 Kina in value because
the goods prices will increase.
 The rate at which the inflation falls will be equal to the
inflation rate. When the inflation rate is high the
money loses its value at a rapid pace(hyper-inflation).
And when it is low the money regain its value slowly.
CONSUMERS
By choosing a particular product that has only few suppliers
 “Inflation is caused by too much money chasing too
few goods. When the buyers have a lot of money to
spend, they bid up the price. The quantity of money
determines the price level and that the growth in the
money supply causes the growth in prices
(Littleboy, Taylor & Weerapana, 2012, p.120).
The consumers contribute to the
inflation by choosing a certain product.
When the demand is high for that
particular product, the supplier rise the
price. This is one way that the consumer
contribute to the inflation in the
country. For example, the price of betel
nut selling in the city is increasing at the
 GOVERNMENT:
By printing more money to finance the
government spending
 The common reason is that the government
prints money to pay for its expenditure
(government spending). Because they will
not have the credibility to borrow funds, also
have trouble raising revenue from taxes
because it is easy for the people to avoid
taxes (Littleboy, Taylor & Weerapana, 2012).
Thus, the Papua New Guinea Bank starts
print money and let the government use the
 In developed countries, they finance the government spending
other means of earning revenues like tax collection and tax
revenue. And in developing countries including Papua New
Guinea, the tax collection and tax revenue is not enough to cover
government spending. The only way to finance the debt for the
government spending or government spending is through
printing money. The printing of too much money to cover
government spending contribute to increase the inflation very
high. The government gain in from inflation while printing more
supply of money to cover its expenditures. The government gain
from printing too much money by earning invisible from inflation
tax and repaying the vast debt from other developed countries
that money has been borrowed. When the government creates
inflation by printing money for its own use to cover for the
expenditure, it reduces the real purchasing power of notes (K)
and coins (t) for the country.
Inflation is one of the key
concept in the study of
macroeconomics. It determines the
country’s Economical state, and
it helps the economistS to
control the economy of the
country through implementation
of monetary and fiscal policies.
 Government should quit borrowing money from other countries.
 Discourage government running the economy of a deficit balance.
 A tight control over the Monetary and Fiscal policies.
 Stop government to invest in unproductive activities. E.g. Sports
 Choose a fix inflation rate to keep the economy focus.
 Do away with corruption in the government sectors and business sectors.
 With assistance from the Monetary funds and the World Bank, the
government should make considerable progress towards
macroeconomics like the stability and economic reform