Assignment of Fin-2209: Macroeconomics

A Report On

A case study of BangladeshInflation, Unemployment , Growth Trend

Submitted to

Saud Ahmed
Course Instructor/ Lecturer, Department of Finance, Faculty of Business Studies Jagannath University, Dhaka

Submitted by

Sultan Ahmed Khan

Representative of the group Epimetheus BBA 3rd Batch Department of Finance, Faculty of Business Studies Jagannath University, Dhaka.

Group Name: Epimetheus Group No: Name of the members of the group:

Serial No: 01 02 03 04 05 06 07 08 09

Name of the members of the group Sultan Ahmed Khan Md. Mynul Islam Mamunur Rashid Md. Mofazzal Hossen Sharjil Ahmed Md. Anik Mahmud Protiva Talukder Md. Mehedi Hasan Mohammad Didarul Islam Khan

Roll Number 091597 091633 07882747 091615 091623 091636 091602 091590 091613

Group Representative: Sultan Ahmed Khan. Group Coordinator : Md. Mynul Islam.

Contact

: epimetheus.jnu@gmail.com

May 02, 2011

The Course Instructor,

Saud Ahmed, Lecturer, Department of Finance, Jagannath University, Dhaka. Sub: Thanks giving letter to the respective faculty member.

Sir,
We are the student of Department of Finance (3rd batch) of Jagannath University, Dhaka & also from the group named Epimetheus. We are very much enthusiastic about our presentation. We are really happy to have such a presentation of challenging and interesting like this presentation & also

thanks to you for making us worthy for corporate. Our presentation topic is A case study of Bangladesh- Inflation, Unemployment & Growth trend. We have learned many things from this topic which will help us in future to conduct as an analyst of economics. There were some
obstacles we have faced at the time of collecting data about our topic. But we have overcome all the obstacles by the endeavor effort by each member of our group and tried our best to give an overview of our topic. We the group Epimetheus tried our best to make this presentation attractive, impeccable, interesting, informative and enjoyable by the help of electronic and print media in association with our honorable teacher, mentor, counselor, instructor and advocate Saud Ahmed. We are really grateful to him. We had limitations at the time preparing presentation. So mistakes may occur in our demonstration of our presentation. We hope that, you will exempt our mistakes.

Thanking in anticipation, Yours Fidel,

Sultan Ahmed Khan

Group Representative,

Group-Epimetheus BBA 3rd Batch Department of Finance Jagannath University,Dhaka.

First of all we would like to thank the Almighty for giving us the strength, and the aptitude to complete this report within due time. We are deeply indebted to our course teacher, mentor, and counselor, Saud Ahmed for assigning us such an interesting topic named A cause study of Bangladesh- Inflation, Unemployment and Growth Trend. We also express the depth of my appreciation to our honorable course teacher for his suggestion and guidelines, which helped us in completing this report.

Inflation, unemployment and growth trend are the major factor of macro economics. Losing the purchasing power and increasing the cost of production indicates the high rate of inflation. Unemployment occurs when people are without jobs and they have actively looked for work within the past four weeks. The trend of the growth of the real GDP is called Growth Trend. Economic growth is primarily driven by improvements in productivity. However, inflation & growth rate have both positive & negative relationship depending on situation. Moreover, inflation and unemployment have a negative relationship. All the factors are interrelated and at the time of analyzing one must consider each and every factor with equal consideration. If we analyze the economical condition of our country it is clear that inflation is higher in recent years comparing with past decade. Growth trend is upward till the inflation rate is 7 percent. After that the trend gets downward. At the same time unemployment rate is inverse all the time with inflation rate maintaining contractionary & expansionary policy. Inflation fluctuates all the time because of the fluctuation of the money supply. But in recent years, we came to know that international affairs are influencing to increase the inflation rate. Consistent budget deficit and exchange rate deteriorate the economic growth which directly relates with unemployment & inflation.

NAME
Executive Summary

Page no

Introduction
1.1 Introduction 01 01 02 02 02 02

Chapter- 01

1.2 Rational of the study 1.3 Objective of the study 1.4 Scope of the study 1.5 Methodology of the study 1.6 Limitations of the study

Body of the term paper

Inflation Effect on the economy Causes behind inflation Historical trend analysis 03 03 05 07

Chapter- 02

Limitation of economic system & needed 10 step Unemployment rate Effect of unemployment Causes behind unemployment Aftermath of unemployment Needed steps Growth Trend 11 12 14 17 18 19

Relationship with inflation Historical trend & needed step

22 23 24 25 25

Findings of the study

Chapter-03

Conclusion Bibliography

Contents of Tables, Graphs

NAME
Trend of inflation Trend of unemployment Trend of growth trend

Page No
07 16 21

Chapter- 01
Introduction
Too much money in circulation causes the money to lose value-this is the true meaning of inflation. Unemployment occurs when people are without jobs and they have actively looked for work within the past four weeks-ILO. The trend of the growth of the real GDP is called Growth Trend. Economic growth is primarily driven by improvements in productivity. In this report we tried to show that how inflation, unemployment, growth trend are related each other & how important it is for economy & how it works in our country.

Rationale of the study

The case study is assigned by our course teacher Saud Ahmed as a part of our Macro Economics course. The topic of our case study is A case Study of Bangladesh: Inflation, Unemployment, and Growth Trend. By conducting this study we can enhance our knowledge and skill to apply various research methods in professional life on higher educational life. The report has given us a chance to raise our quality in developing research instrument and its applications. By doing so, we can boost our acceptability in job market and develop our real life knowledge.

Objective of the Case Study

Primary objective
The main objective of the study is to know how the factors of macroeconomics work in our country.

Secondary objective:
The case study has the following objectives: To know about Inflation, unemployment, Growth Trend. How inflation, Unemployment and Growth Trend fluctuate. Relationship among the inflation, unemployment and growth trend. Causes behind the inflation, unemployment and growth trend.

Scope
There were huge scopes to work in the area of this Case Study. Considering the dead line, and exposure of the paper has been wide-ranging. The study A case Study of Bangladesh: Inflation, Unemployment, and Growth Trend has covered overall scenario of macroeconomics situation of Bangladesh. It has measured the living standard of mass people. We have a chance to work on the economic variable used in modern economic world. By doing the assignment, we are able to know that the importance of inflation, unemployment & growth trend to assess how the people of the country living in. In the case study we have showed how the above variables are inter related on each other.

Methodology
We have used the concept of the course, information of the case study. Sources of Data
Here the secondary sources of information were used. The secondary sources are: Books. Website.

Limitations
While conducting the report on A case Study of Bangladesh: Inflation, Unemployment, and Growth Trend, some limitations were yet present there: Because of time shortage many related area cant be focused in depth. Website in different organization of Bangladesh contains poor information. Recent data and information on different activities was unavailable.

Chapter-2 Inflation

Definition
Too much money in circulation causes the money to lose value-this is the true meaning of inflation. The popular opinion about the costs of inflation is that inflation makes everyone worse off by reducing the purchasing power of incomes, eroding living standards and adding, in many ways, to lifes uncertainties. In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. Inflation refers to a rise in prices that causes the purchasing power of a nation to fall. Inflation is a normal economic development as long as the annual percentage remains low; once the percentage rises over a pre-determined level, it is considered an inflation crisis. In another word Inflation means that your money wont buy as much today as you could yesterday.

Definition of Inflation rate (consumer prices)

This entry furnishes the annual percent change in consumer prices compared with the previous year's consumer prices. The inflation rate is the percentage rate of change of a price index over time.

Effect on the economy

Effect of Inflation

General

Negative

Positive

General Effect
An increase in the general level of prices implies a decrease in the purchasing power of the currency. That is, when the general level of prices rises, each monetary unit buys fewer goods and services. Increases in the price level (inflation) erode the real value of money (the functional currency) and other items with an underlying monetary nature (e.g. loans and bonds). For example if one takes a loan where the stated interest rate is 6% and the inflation rate is at 3%, the real interest rate that one are paying for the loan is 3%. It would also hold true that if one had a loan at a fixed interest rate of 6% and the inflation rate jumped to 20% one would have a real interest rate of -14%.

Negative Effect
High or unpredictable inflation rates are regarded as harmful to an overall economy. They add inefficiencies in the market, and make it difficult for companies to budget or plan longterm. Inflation can act as a drag on productivity as companies are forced to shift resources away from products and services in order to focus on profit and losses from currency inflation. Uncertainty about the future purchasing power of money discourages investment and saving and inflation can impose hidden tax increases. In case of international trade, Higher inflation in one economy than another will cause the first economy's exports to become more expensive and affect the balance of trade

Positive Effect
Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in non-monetary capital projects. It puts impact on Labor-market adjustments, Room to maneuver, Mundell-Tobin effect, Instability with Deflation etc.

Causes behind inflation

In developing countries, in contrast, inflation is not a purely monetary phenomenon, but is often linked with fiscal imbalances and deficiencies in sound internal economic policies. Beside, factors typically related to fiscal imbalances such as higher money growth and exchange rate depreciation arising from a balance of payments crisis dominate the inflation process in developing countries. There were different schools of thought as to the causes of inflation. Most can be divided into two broad areas: 1. Quality theories of inflation 2. Quantity theories of inflation. The quality theory of inflation rests on the expectation of a seller accepting currency to be able to exchange that currency at a later time for goods that are desirable as a buyer. The quantity theory of inflation rests on the quantity equation of money that relates the money supply, its velocity, and the nominal value of exchanges. Adam Smith and David Hume proposed a quantity theory of inflation for money, and a quality theory of inflation for production After analyzing two theories of causes we have got here some physical cause to face which cover both theories depending on a number of factors. These are given below-

Excess of money
Inflation can happen when governments print an excess of money to deal with a crisis. As a result, prices end up rising at an extremely high speed to keep up with the currency surplus. This is called the demand-pull, in which prices are forced upwards because of a high demand.

Rise in production cost

Another common cause of inflation is a rise in production costs, which leads to an increase in the price of the final product. For example, if raw materials increase in price, this leads to the cost of production increasing, which in turn leads to the company increasing prices to maintain steady profits? Rising labor costs can also lead to inflation. As workers demand wage increases, companies usually chose to pass on those costs to their customers.

International lending & national debt

Inflation can also be caused by international lending and national debts. As nations borrow money, they have to deal with interests, which in the end cause prices to rise as a way of keeping up with their debts. A deep drop of the exchange rate can also result in inflation, as governments will have to deal with differences in the import/export level.

Government taxes
Finally, inflation can be caused by federal taxes put on consumer products such as cigarettes or fuel. As the taxes rise, suppliers often pass on the burden to the consumer; the catch, however, is that once prices have increased, they rarely go back, even if the taxes are later reduced.

War
Wars are often cause for inflation, as governments must both recoup the money spent and repay the funds borrowed from the central bank. War often affects everything from international trading to labor costs to product demand, so in the end it always produces a rise in prices

Lists of Inflation Rate from 1991-2010

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Inflation rate
(Consumer Price)

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (H1)

Inflation Rate
(Consumer Price)

8.0 3.8 3.0 3.5 8.8 7.0 2.6 7.0 9.0 9.0

5.8 5.8 3.1 5.6 6.0 7.0 7.2 9.1 8.9 5.4

Source: (1) CIA World Factbook.

(2) Bangladesh Bank. (3) Bangladesh Bureau of Statistics.

Graph of Inflation Rate in Bangladesh

Inflaton Rate
Inflaton Rate 9.1 8.9 7 5.8 5.8 3.8 3 3.5 2.6 5.6 6 7.2 5.4

8.8 8 7 7

3.1

Historical Trend Analysis

The government introduced policy and institutional reforms encompassing the fiscal, financial, exchange rate, trade and industry, public resource management and public enterprise sectors. But some of those measures were not strongly pursued and some of the intended structural reforms were postponed. Monetary control in the initial years had a positive impact on the control of inflation. The regarded decision are taken belowTo increase investible funds with the banks, the minimum cash reserve requirement and statutory liquidity requirement were reduced gradually from 8 and 23 per cent respectively on 25 April 1991 to 5 and 20 per cent respectively. This decision has reduced the inflation rate. In 1991 the lending rate was 14.99 which was high during 1992 but then it started to be reduced at 14.39 (1993) and 12.22 at 1995. With the flexible use of the monetary instruments, broad money growth (Money Supply) was brought down from high rates of growth (14.1 percent) in the mid-1992 to 10.6 per cent in June 1993 to reduce the rate of inflation. In the year 1995 government was thinking to increase the money supply which was brought to 16 percent for that reason inflation rate increased.

In the year 1995 government was thinking to increase the total domestic credit which was brought to 17.6 percent from 4.9 percent (1994). For this reason the inflation rate increased. In the year 1995 government liberalized Credit to the private sectors in fiscal year 1995 by reducing lending rates including those in the three selected sectors of agriculture, exports, and small and cottage Industries had to be restrained due to the rise in price levels. For this reason inflation rate has increased With a view to ensuring an adequate flow of finance to productive sectors and to boosting economic activity, Bank rate was gradually lowered from 9.8 per cent on 30 June 1990 to 5.5 per cent on 3 March 1994 to control the inflation rate. On 24 March 1994 Bangladesh accepted the Article VIII obligations of the International Monetary Fund, a commitment to declare its currency convertible for current account transactions and liberalize exchange transactions on current account. Foreign exchange controls, which had constrained transactions for a long time, were lifted for the majority of current account transactions. An interbank foreign exchange market has been established. The exchange rate policy is being managed flexibly so as to avoid appreciation of the real exchange rate and to maintain macroeconomic stability. Moderate economic growth and modest change in the wage index contributed to the relatively low rate of inflation (i.e., lower than 5 per cent) in 1990-1994. Higher money supply growth and lower deposit rate in FY95 contributed to the comparatively higher inflation rates in 1995. In 1996 the lending rate was 13.41 which were accelerated to 14.16 in 1999. Supply shortages in the rural areas originating from political instability in FY96 and disruption due to floods in 1998 caused serious shortfall of food and also hampered all other agricultural production, which ultimately caused higher inflation rates in 1996, 1998 & 1999. A lower growth rate, because of lower production and relatively higher depreciation of the exchange rate due to food imports, also contributed to the higher inflation rate in the flood affected years. Larger depreciation of the exchange rate has accelerated the inflation rate 2.79 (2002) to 4.38 (2004). Exchange rate might have played a significant role in causing inflation in 2005-2006 because of the introduction of flexible exchange rate regime since May 2003. A higher growth of money supply (13.84 at 2004 to 19.51 at 2006) added a lot to inflation in 2005-2006. In 2001 the lending rate was 13.75 which were lowered to 10.93 in 2005.

In 2001-2006 high inflation in food (more than 5 percent) sector at international market was so much responsible for the fluctuation of inflation. Typically import occupies a significant place in the Bangladesh economy, accounting for as high as above 20 percent or more of GDP in FY06. At the margin, most of the essential food items (for example, sugar, rice, wheat, onion and edible oil) and, more generally, machineries, intermediate goods and raw materials used in production are imported. Cost of imports can, therefore, be expected to have a substantial influence on domestic inflation (during 2001-2006) directly (through final goods) or indirectly (through intermediate goods). Unfair cartel among the suppliers might seriously hamper the course of the economy by engendering inflation via the creation of a false supply shortage even during a period of robust growth in production. Such an undesirable event allegedly occurred in FY06 when the food inflation remained high (7.76 percent) in the same fiscal year despite the growth in food production (4.49 percent8 vis--vis 2.21 percent in FY05). Monopolistic control of several food items such as sugar, onion, pulses and edible oil by market syndication seems to have led this situation.9 Obviously such manipulation is a type of supply side disturbance. Inflation has emerged as a global phenomenon in recent months largely reflecting the impact of higher food (The IMF food price index was 44.4 percent at June 2008) and fuel prices and strong demand conditions especially in the emerging economies. In line with global trends, Bangladesh also experienced rising inflation with the 12month average CPI inflation touching 9.94 percent in June 2008. In the fiscal year 2009, global oil price has shifted upward dramatically so fast. So that the price of fuel & power has driven very sharp impact on our economy by increasing the price of Industrial product and reduces the output of industry. Though our government has taken needed initiatives to minimize the inflation rate but they have failed up to the expectation. In the fiscal year 2010, global food price has shifted upward dramatically so fast. So that the price of food has driven very sharp impact on our economy. Though the inflation has decreased to a reasonable rate (5.4 percent), the price of food is beyond to the normal people. Because of the insufficiency of credit to productive sectors it is unable to invest money in productive sectors whereas the money are using in less productive sectors which causes a high rate of inflation.

Limitations of Economic system

The quarterly data on budget deficit and government expenditures are not available, which hinders the analysis on the supply side determinants of inflation. The wage rate is not considered here because of the developing country nature, Labor is assumed to be abundant. The key findings: Inflation in Bangladesh can be explained by money supply growth as money supply has statistically significant power of forecasting the movement in CPI. It might be channeled through either the effects of money supply on GDP or the effects of money supply on exchange rates. The deposit rate of interest is a relatively weak determinant of fluctuations in inflation in Bangladesh, whereas deposit rate of interest is a moderately strong determinant of nominal exchange rate, but only in the short run. Money supply is a moderate determinant of fluctuation in real output, at the same time; money supply is a moderately strong determinant of fluctuation in nominal exchange rate in Bangladesh during the period FY90-FY10.

Needed steps
These results have important policy implications for both domestic policy makers and the development partners. First, taking into consideration that the inflation rate is not indexed in the wages and salaries, inflation will lead to a decrease in the purchasing power and an increase in the cost of living. Second, given that the country frequently has to balance the credit requirements by the private and public sector against both inflationary and balance of payments pressures, it is not always possible for the monetary authority to increase (or adjust) the nominal interest rate above the expected (or actual) inflation rate through contractionary monetary policy 11. In this regard, the monetary authority can think of an alternative way by working on the expectations channel to reduce inflation. This requires credibility of the monetary authority in following through its monetary program as communicated in advance to the stakeholders.

Unemployment Rate
Definition
The percentage of the work force that is unemployed at any given date is known as unemployment rate. In another word, An economic condition marked by the fact that individuals actively seeking jobs remain unemployed is known as unemployment According to International Labor Organization (ILO), Unemployment occurs when people are without jobs and they have actively looked for work within the past four weeks.

Definition of Unemployment Rate

The percentage of the total labor force that is unemployed but actively seeking employment and willing to work is treated as unemployment rate. A person who simply expresses interest in having a job is classified as unemployed. The unemployment rate represents the number unemployed as a percent of the labor force. It is a serious social evil & the rate of unemployment is an indicator of the health of an economy"

Effect of unemployment
It is believed that unemployment is a serious social evil & the high rate of unemployment indicates unhealthy situation of an economy. If the full level of employment can be used then it is possible for a country to enrich itself. Each and every country in this world is trying to reduce the rate of unemployment for their betterment. During unemployment, it puts a great effect on the economy that is given Effect of unemployment below:-

Economic Effect

Social Effect

Effect of unemployment on the economy

Wasted production
Unemployed workers represent wasted production capability. This means that the economy is putting out less goods and services than it could be producing.

Unemployment financial costs

The government and the nation suffer. The greater the number of the unemployed or the longer they are without work the more money the government has to shell out. Because they are out of production & may produce output for the nation. Therefore, the nation not only has to deal with the lost income and decreased production but also with additional cost.

Spending power
The spending power of an unemployed person and his/her family decreases drastically and they would rather save than spend their money, which in turn affects the economy adversely.

Reduced spending power of the employed

Increased taxes and the insecurity about their own work may affect the spending power of the working people as well and they too may start to spend less than before thus affecting the economy and also the society in a negative manner.

Recession
With the increase rates of unemployment other economy factors are significantly affected, such as: the income per person, health costs, quality of health-care, and standard of leaving and poverty which may cause recession.

Effect of unemployment on the society

Standard of living
Most people rely on their income to maintain their standard of living. The loss of a job will often directly threaten to reduce that standard of living. This creates a number of emotional problems for the worker and the family.

Tension over taxes rise

Unemployment also brings up discontent and frustration amongst the taxpaying citizens. In order to meet the demands of the unemployment fund the government many a times may have to increase the taxes thus giving way to restlessness amongst the taxpaying citizens.

Insecurity amongst employees

The prevailing unemployment and the plight of the unemployed people and their families may create fear and insecurity even in the currently employed people.

Crime and violence

Increase in the rate of crime due to unemployment.

Employment gaps
To further complicate the situation the longer the individual is out of job the more difficult it becomes to find one. Employers find employment gasps as a negative aspect. No one wants to hire a person who has been out of work for some time even when theres no fault of the individual per say.

Causes behind unemployment

Minimum wages
If there are unemployed workers who want jobs, the price of labor or the wage will simply drop until all of the labor force is employed. This helps the employers to keep the wages level sustainable. On the other hand, raising the minimum wage therefore also increases unemployment.

Labor union
Another closely related cause of unemployment lies with the actions of labor unions. These unions force firms to spend more money on each worker, some in the form of wage and some in the form of benefits. This raises the wages of workers above the market clearing level and creates a situation in which there are more people who want to work at the wage than firms. Labor unions increase the wages and benefits of workers who are employed, but may simultaneously increase the number of workers who are unemployed.

Efficiency wages
The basic idea behind efficiency wages is that firms benefit by paying their workers above the equilibrium wage, since higher wages produce happier, healthier, and more productive workers, and may even increase worker loyalty. But, when the firms pay efficiency wages that are above the equilibrium level, they also create an excess in the labor supply, more people want to work for the wage. Efficiency wages, like the minimum wage and labor unions, therefore increase the wages for workers who are employed but also increase overall unemployment.

Job search
When a person decides that he wants to work, he cannot simply become employed. During the process of looking for the right job, the person is considered as an unemployed member of the labor force.

Economic growth
The greater the amount of goods and services produced, the greater the labor required for production. But strong regulation in standard economy that discourages the operation of business will reduce the demand for labor & will create unemployment.

Regulations and taxes

Regulations and taxes may have an especially strong impact on smaller businesses as well as larger one. High taxes increase the cost of production including labor wages & strong regulation reduce the demand of the product as well as labor. Thus create unemployment in the economy.

Employer incentives
Work-sharing programs, in which more workers are employed and hours per worker are reduced, tend to increase employer costs because of the selection and training costs incurred for new employees. It induces employers to raise prices and/or curtail production. Increased prices discourage consumer demand and, like reduced production, lead to decreased demand for labor, and an effect contrary to that intended by advocates of worksharing. Like this one different incentives stay behind unemployment.

Employee incentives
Individuals will be more interested in working as their take-home pay increases and their income from other sources decreases. Many country payments a compensate amount for being unemployment for a short period of time. This incentive trends to be unemployed.

Global recession
Global recession forces some companies to increase the production price of a commodity. Thus to survive in the industry each and every company tries to minimize the production cost by eradicating the existing employees. This how creates new unemployment in the economy.

List of unemployment in Bangladesh are given below:

Year 1996 1999 2000 2001 2002 2003 2004 Unemployment Rate Year (%) 35.20 4.3 35.20 35.20 40.00 40.00 40.00 2005 2006 2007 2008 2009 2010 Unemployment Rate (%) 40.00 2.50 2.50 2.50 2.50 5.10

Source: Ministry of Labor & Employment, ILO (www.mole.gov.bd)

Graph of unemployment rate

40 35 30 25 20 15 10 5 0 1996 2000 2002 2004 2006 2008 2010

Uneployment Rate

Aftermath & Reason behind fluctuation of unemployment rate in BD

In the year 1999, the rate of unemployment was reduced due to taken some policy decision at 4.3 percent compare to 1996 at 35.2 percent. In the year 2000, labor force survey shows the rate of unemployment rise again at 35.2 percent from 4.3 percent only because female workers. It revels the female underemployment rate is very high, which is 52.8% and male underemployment rate is only 7.4% only because traditional purpose. If we adopt contractionary monetary policy to prevent inflation, our unemployment will go up. On the other hand, if expansionary monetary policy is adopted to reduce unemployment, inflation will increase. In the year 1999 to 2000 inflation rate was stable but at 2000 contarctionary policy has taken by government so that unemployment has increased from 4.3 percent to 35.20 percent. In the year 2001 to 2002 inflation was again stable but less than 9 percent (2000). At the same time unemployment rate was increasing from 35.2 percent to 40.0 percent which is aftermath of contarctionary policy. In the year 2003-2005 unemployment rate was stable at 40.0 percent but inflation rate was increasing from 3.1 percent to 6.0 percent. This is the aftermath of expansionary policy In the year 2006-2008 unemployment rate was stable at 2.5 percent but inflation was increasing from 7.0 percent to 9.1 percent. So this is the aftermath of expansionary policy. In the year 2009 unemployment rate was stable but inflation rate decreased a little bit. So we are considering it as an aftermath of contractionary policy. In the year 2010 unemployment rate increased at 5.10 percent & inflation rate decreased at 5.4 percent. So it is clear that it is contarctionary policy.

Needed steps
We are experiencing the present inflation primarily because of external reasons. It is not the inflation due to increase in aggregate demand only. This inflation has occurred for the upward movement of the production cost. The exchange rate will usually decrease as an effect of expansionary monetary policy. As a result, we will not be able to buy foreign goods easily. At this situation, we should increase the foreign exchange rate of our currency and control it strictly. If it is possible to mix and coordinate appropriate fiscal and monetary policies effectively, the country might be able to decrease unemployment problem to some extent. Again, we want to adopt the expansionary monetary policy to decrease unemployment problem. We shall adopt either expansionary monetary policy or expansionary fiscal policy or both. It will help increase the income and production, import of everyday essential commodities, and buying capacity of the citizens & reduce the rate of unemployment.

Growth Trend
In 1377, the Arabian economic thinker Ibn Khaldun provided one of the earliest descriptions of economic growth in his Muqaddimah (known as Prolegomena in the Western world). Economic growth is the increase of per capita gross domestic product (GDP) or other measures of aggregate income, typically reported as the annual rate of change in real GDP. The trend of the growth of the real GDP is called Growth Trend. Economic growth is primarily driven by improvements in productivity, which involves producing more goods and services with the same inputs of labor, capital, energy and materials. The topic of economic growth is primarily concerned with the long run. The short-run variation of economic growth is termed the business cycle.

Various theories on economic growth

Classical growth theory
The classical theory was that productive capacity, itself, allowed for growth and the improving and increasing capital to allow that capacity was "the wealth of nations". Whereas they stressed the importance of agriculture and saw urban industry as "sterile", Smith extended the notion that manufacturing was central to the entire economy.

The neoclassical growth model

The notion of growth as increased stocks of capital goods (means of production) was codified as the Solow-Swan Growth Model, which involved a series of equations which showed the relationship between labor-time, capital goods, output, and investment. According to this view, the role of technological change became crucial, even more important than the accumulation of capital. This model assumes that countries use their resources efficiently and that there are diminishing returns to capital and labor increases. From these two premises, the neoclassical model makes three important predictions. First, increasing capital relative to labor creates economic growth, since people can be more productive given more capital. Second, poor countries with less capital per person will grow faster because each investment in capital will produce a higher return than rich countries with ample capital. Third, because of diminishing returns to capital, economies will eventually reach a point at which any increase in capital will no longer create economic growth. This point is called a "steady state". Technology improves, the steady state level of capital increases, and the country invests and grows.

Endogenous growth theory

This model also incorporated a new concept of human capital, the skills and knowledge that make workers productive. Unlike physical capital, human capital has increasing rates of return. Therefore, overall there are constant returns to capital, and economies never reach a steady state. Growth does not slow as capital accumulates, but the rate of growth depends on the types of capital a country invests in. Research done in this area has focused on what increases human capital (e.g. education) or technological change (e.g. innovation).

Creative destruction and economic growth

Capitalism expands wealth primarily through creative destructionthe process by which the cash flow from obsolescent, low-return capital is invested in high-return, cutting-edge technologies.

Negative effects of economic growth

It may be that economic growth improves the quality of life up to a point, after which it doesn't improve the quality of life, but rather obstructs sustainable living. Historically, sustained growth has reached its limits (and turned to catastrophic decline) when perturbations to the environmental system last long enough to destabilize the bases of a culture. Industries cause consumers to develop new taste, and preferences for growth to occur. Consequently, "wants are created, and consumers have become the servants, instead of the masters, of the economy. Concerns about possible negative effects of growth on the environment and society led some to advocate lower levels of growth, from which comes the ideas of uneconomic growth and de-growth, and Green parties which argue that economies are part of a global society and a global ecology and cannot outstrip their natural growth without damaging them.

Twenty years GDP of Bangladesh are given below

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Growth rate (%) 4.603 4.203 4.801 4.324 4.513 4.77 5.013 5.304 5.044 5.421

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Growth rate (%) 5.6 4.834 4.845 5.776 6.108 6.302 6.525 6.305 6.032 5.429

Source: (1) Economy Watch (http://www.economywatch.com/economic-statistics/country/Bangladesh/)

(2) Bangladesh Bank

Trend of GDP

Relationship with Inflation

Over the past few decades, the nexus between inflation and economic growth have drawn extensive attention of macroeconomists. Specifically, the issue that whether inflation is necessary for economic growth or it is harmful generates a significant debate both theoretically and empirically. In this connection, Mundell (1965) and Tobin (1965) predict a positive relationship between the rate of inflation and the rate of capital accumulation, which in turn, implies a positive relationship to the rate of economic growth. They argue that since money and capital are substitutable, an increase in the rate of inflation increases capital accumulation by shifting portfolio from money to capital, and thereby, stimulating a higher rate of economic growth (Gregorio, 1996). Conversely, Fischer and Modigliani (1978) suggest a negative and nonlinear relationship between the rate of inflation and economic growth through the new growth theory mechanisms (Malla, 1997). They mention that inflation restricts economic growth largely by reducing the efficiency of investment rather than its level. Mallik and Chowdhury (2001) examine the short-run and long-run dynamics of the relationship between inflation and economic growth for four South Asian economies: Bangladesh, India, Pakistan, and Sri Lanka. Applying co-integration and error correction models to the annual data retrieved from the International Monetary Fund (IMF) International Financial Statistics (IFS), they find two motivating results. First, the relationship between inflation and economic growth is positive and statistically significant for all four countries. Second, the sensitivity of growth to changes in inflation rates is smaller than that of inflation to changes in growth rates. These results have important policy implications, that is, although moderate inflation promotes economic growth, faster economic growth absorbs into inflation by overheating the economy. Therefore, these four countries are on the turning point of inflation-economic growth relationship.

Historical Trends of Inflation and Economic Growth

Our economy has experienced accelerated economic growth during the early 1990s in comparison with the 1980s. However, after that period, the economy experienced most severe exigency states like increasing inflationary pressures, deteriorating governments budgetary balances and decreasing foreign exchange reserves. Throughout the first half of the 1990s, inflation rate was, on average, 5.37 percent, while GDP growth rate was 4.06 percent. Inflation rate increased, on average, to 5.52 percent in the second half of the 1990s, the growth rate of GDP continued to increase. The beginning of the new decade after 1990s and inflation was observed at 4.14 percent, on average, during 2001 to 2005, when growth rate of GDP was, on average, 5.19 percent. What the average GDP growth rate is when inflation rates are 3 percent or less during the period from 1981 to 2005 and so on. Illustrates a positive relationship between inflation and GDP growth up to the inflation rate of 7 percent (approximately) and a negative relationship is observed after that level of inflation rate.

Needed Steps
Our first and foremost concern is to keep the inflation rate under 7 percent cause with this inflation rate growth is positive. Our government should take initiative to reduce deterioration of budgetary balance because budget deficit is the major obstacle to growth trend. Our government should take steps to increase foreign exchange reserve which will add a lot to growth.

Chapter-03 Findings and conclusion

Findings of the study

The intension of this study is to know how to work with digital information system. The major findings of the overall study are discussed below: Importance of inflation, unemployment and growth trend. How they are interrelated with each other. Reason behind the factors (inflation, unemployment and growth trend) Historical trend of these macroeconomic factors. The overall economic & monetary scenario of Bangladesh.

Conclusion
After completing this study we have learnt that inflation, unemployment and growth trend are highly correlated. Authority cannot overlook factor individually. In our country inflation rate is highly relying on supply side and exchange rate. Inflation is positively related with growth rate up to 7 percent after that it gets negative. In our country, labor factor cannot be counted so effectively to calculate inflation.

Bibliography
Books
Rudiger Dornbusch, Stanley Fischer & Richard Startz; Macroeconomics; 9th Edition. (United States of America: McGraw Hill Book Company, 2011-2012).

Web Sites
1. 2. 3. 4. www.bb.org.bd www.mol.gov.bd www.economywatch.com www.en.wikipedia.org