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									Saddam Hussain
BCH:9168


8/18/2011

Business Research Method
Research Design
                                Saddam Hussain
                                       BCH:9168




                TOPIC
DETERMINANTS OF INFLATION IN PAKISTAN


INDEPENDENT             DEPENDENT
VARIABLE                VARIABLE

MONEY SUPPLY




IMPORT PRICES           INFLATION



G.D.P GROWTH
                                                          Saddam Hussain
                                                                   BCH:9168




                  RESEARCH DESIGN


           “Plan what type of data, from whom, how and when to collect the
     data and analyze the data obtained”.




COMPONENTS OF RESEARCH DESIGN:
    Introduction
    Purpose
    Significance
    Literature Review
    Theoretical frame work
    Objectives
    Research Questions
    Hypothesis
    Methodology
    Limitations & Delimitations
    Ethical Consideration
                                                                      Saddam Hussain
                                                                                BCH:9168




Background:
When the general price level rises, each unit of currency buys fewer goods and
services. Consequently, inflation also reflects erosion in the purchasing power of money
– a loss of real value in the internal medium of exchange and unit of account in the
economy. Negative effects of inflation include a decrease in the real value of money and
other monetary items over time. Price inflation is commonly thought to be caused
by "too much money chasing too few goods." The general price level is indeed
correlated with the money supply, but correlation should not be confused
with causation. In a modern economy, prices are seldom driven by the money supply.
More commonly, the money supply reacts to changes in the general price level.

GDP can grow, even when there is inflation. But for that to happen (theoretically) more
goods and services must actually be exchanged, rather than having the prices for the
same amount of goods and services increase.




Problem statement:
                           Determinants of Inflation in Pakistan.

I am that significant from previous researcher because they did not make research in
Lahore the area of Pakistan and this research is city and country based research. It has
been generally agreed by the economists that high rates of inflation and hyperinflation
are caused by an excessive growth in the supply of money. Today, most economists
favor a low steady rate of inflation

Demand-pull inflation, in which prices are forced upwards because of a high demand,
and excessive monetary growth for inflation to continue, the money supply must grow
faster than the real GDP.
                                                                         Saddam Hussain
                                                                                   BCH:9168




Purpose Statement:
The purpose of this survey based on quantitative research or study to define the
inflation. Here in this model money supply, import prices, GDP growth are considered
as independent variable for the determinants on inflation and Inflation is considered as
dependent variable.




SIGNIFICANCE OF RESEARCH STUDY:
Our case study will add to the empirical base for identifying those factors that contribute
to the inflation in Pakistan. We present a methodological approach to such studies that
can be applied to analysis of other researches.

This study will suggest the following directions for future research:

Conducting empirical studies on how money supply, import prices, GDP growth impact
on inflation.

Briefly discussing how money supply, import prices, GDP determinant of inflation. So
after this research researcher knowledge will be increase about the determinants of
inflation.
                                                                         Saddam Hussain
                                                                                    BCH:9168




LITERATURE REVIEW:

                                   “A literature review is a body of text that aims to
review the critical points of current knowledge including substantive findings as well as
theoretical and methodological contributions to a particular topic. Literature reviews
are secondary sources”.



Relationship Between Money Supply & Inflation:

                            The entire quantity of bills, coins, loans & credit and other
liquid instruments in a country's economy. The rate at which the general level of prices
for goods and services is rising, and, subsequently, purchasing power is falling. Central
banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep
the excessive growth of prices to a minimum.

                                    Inflation's effects on an economy are various and can
be simultaneously positive and negative. Negative effects of inflation include a decrease
in the real value of money and other monetary items over time, uncertainty over future
inflation may discourage investment and savings, and high inflation may lead to
shortages of goods if consumers begin hoarding out of concern that prices will increase in
the future. Positive effects include ensuring central banks can adjust nominal interest
rates and encouraging investment in non-monetary capital projects.

                Money supply and inflation are linked because a high quantity of money
usually devalues demand. The relationship between money supply and inflation is
explained differently depending on the type of economic theory used. In the quantity of
money theory, also called monetarism. Changes in money supply are often used to try
and control inflationary conditions. When a region is trying to lower inflation, central
banks will generally lower lending rates and increase interest. When inflation drops
below a target level, these standards are generally relaxed in an attempt to stimulate
the economy. Usually, countries use a federal banking system to set lending and
interest limits based on economic data.
                                                                          Saddam Hussain
                                                                                    BCH:9168




The money supply is just that: the amount of money floating around the economy and
available for spending. The Federal Reserve publishes data on the levels of M1 and M2
weekly, and has been collecting data on the money supply since the 1950s. In the less
financially complicated world that existed then, the supply of money showed a very
strong correlation to how much money was spent, and it was therefore studied fervently
by economists for clues to economic growth.




Relationship Between Import Prices & Inflation:

                      Inflation in other countries (trading partners) higher input price for
goods reduce competitive pressure on import-competing domestic goods price of
domestic goods may increases. An import price index measures changes in the prices
of imports of merchandise into a country. The index numbers for each reference period
relate to prices of imports landed into the country during the period.

 Imports and their difference (the trade balance) influence the demand of currency
aimed at real transactions. A rising trade surplus will increase the demand for country's
currency by foreigners, so that there should be a pressure for appreciation. A trade
deficit should weaken the currency.

   Were exports and imports largely determined by price competitiveness and were the
exchange rate very reacting to trade unbalances, then any deficit would imply
depreciation, followed by booming exports and falling imports. Thus, the initial deficit
would be quickly reversed. Net trade balance would almost always be zero.



   Import of goods normally requires involvement of the customs authorities in both the
country of import and the country of export and are often subject to import
quotas, tariffs and trade agreements. When the "imports" are the set of goods and
services imported, "Imports" also means the economic value of all goods and services
that are imported.
                                                                           Saddam Hussain
                                                                                     BCH:9168




One the one hand, the government has allocated Rs two billion for Ramadan package
while on the other hand Pakistan is likely to see increase in petroleum product prices by
up to Rs 1.15 per liter in accordance with the rise in international prices with an
objective to pass on the impact to the masses. Why should investors care? Well, due to
a number of reasons, import inflation will find its way onto our dinner tables and backs in
2011. Many companies are seeking to adjust prices upward either through ticket
increases or the reduction of yields on a bottle of detergent or box of cereal. The
measures are paramount to recovering some percentage of the inflation attacking the
business and meeting the financial expectations held by various shareholders.

Relationship Between GDP &Inflation:
                             In Pakistan, general price level is rising since partition of the
subcontinent. Dearness is due to declining economic growth, expansionary policies,
higher taxes and a depreciation of Pak rupee. Generally the whole world is facing the
problem of price like, but in Pakistan it has become a severe problem with more than
11% inflation rate per annum, which is the highest in the world. It is considered that
inflation rate from 2 to 3% is necessary forth proper growth of economy but if it exceeds
from this limit, then it becomes a problem.
       Inflation last month was the lowest in the last five months. However, this does not
mean that the monetary policy stance was a success. Inflation in January was up 1.3
per cent over December—a sharp increase since it had declined by 0.5 percent that
month. Inflation in January was at a five-month low because it was measured against
the high base of January 2010.
         Inflation has averaged 14.8 per cent during the last three-and-a-half years, as
against an average of 5.5 per cent during 2000-07. Various factors have contributed to
the persistence of high inflation since 2008. These factors include the criminal increase
in the support price of wheat, the unprecedented surge in global commodity prices (food
and fuel), the sharp depreciation of the exchange rate (the Shaukat Tarin effect),
excessive borrowing by the government from the SBP to compensate for the fiscal
deficit.
The gross domestic production (GDP) is the godfather of the indicator world. As an
aggregate measure of total economic production for a country, GDP represents the
market value of all goods and services produced by the economy during the period
measured, including personal consumption, government purchases, private inventories,
paid-in construction costs and the foreign trade balance export are added, import are
subtracted.

Presented only quarterly, GDP is most often presented on annualized percent basis.
                                                                         Saddam Hussain
                                                                                   BCH:9168




Most of the individual data sets will also be given in real terms, meaning that the data is
adjusted for price changes, and is therefore net of inflation.



The GDP is an extremely comprehensive and detailed report. In fact, rather GDP report
brings us back to many of the indicators covered in earlier tutorial topics,
as GDP incorporates many of them: retail sales, personal consumption and wholesale
inventories are all used to help calculate the gross domestic product. Various chain-
weighted indexes discussed in earlier topics are used to create Real GDP Quantity
Indexes with a current base year of 2000.
                                          Saddam Hussain
                                                 BCH:9168




                Theoretical frame work:



INDEPENDENT                     DEPENDENT
VARIABLE                        VARIABLE

MONEY SUPPLY




IMPORT PRICES                    INFLATION



G.D.P GROWTH
                                                                   Saddam Hussain
                                                                            BCH:9168




Objectives:
 Main Objective:

       To determine the determinants of inflations in Pakistan.

    Sub objectives:

       To determine the relationship between Money supply &Inflation.
       To determine the relationship between Import prices &Inflation.
       To determine the relationship between G.D.P growth &Inflation.



 Research Question:
        What are the determinants of inflations in Pakistan?



 Hypothesis:
        H1: There is relationship between money supply and inflation.

        H0: There is no relationship between money supply and inflation.

        H2: There is relationship between import prices and inflation.

        H0: There is no relationship between import prices and inflation.

        H3: There is relationship between G.D.P growth and inflation.

        H0: There is no relationship between G.D.P growth and inflation.
                                                              Saddam Hussain
                                                                        BCH:9168




Methodology:
Based on numerical data using positive paradigm to collect the secondary data in
cross sectional research approach



Limitations and Delimitations:
Limitations:

   1. No Experience.
   2. Lack of resources.
   3. Less time

Delimitations:

   1. Small Sample size (300_500).
   2. Limited site (Lahore)
   3. Quantitative research


Ethical Consideration:
     Confidential
     Sign Before Interview

								
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