This study employs simple descriptive statistics and

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annual time-series data for the period 1972-73 to 2009-10. This study employs simple descriptive statistics and regression analysis to perform the task. The findings of the study are evidence to conclude that the trade-off between inflation and GDP growth has been found for the studied time-series data. Inflation in the economy of Pakistan is harmful for the growth of GDP. This statistically significant result indicates that persistent increase in the general price level hurts the economic growth. The study also finds the feasible threshold level of inflation which causes to reduce the growth of GDP. This threshold has been found at the level of 7 percent of inflation. Inflation below this level brings positive impact to the economic growth. But after this level it seriously hurts the growth of the economy of Pakistan. On the basis of this study, it can be recommended to keep the inflation below the level of 7 percent in the economy. Therefore, the policy makers and the State Bank of Pakistan should concentrate on those options which keep the inflation rate stable and below the level which has been found helpful for the achievement of sustainable economic growth. Moderate and stable inflation is also helpful for minimizing the fluctuations and uncertainties in the financial sector of economy, which, in turn, boost the capital formation activities in the country. So that it may exert its positive effects on the economy. So, maintaining price stability will ultimately be the best policy recommendation to stable and sustained economic growth of the economy. References Agha, A. I. and M. S. Khan .(2006). An Empirical Analysis of Fiscal Imbalances and Inflation in Pakistan, SBP Research Bulletin, 2, 343-362. Ahmed, S and M. G.Mortaza. (2005).Inflation and Economic Growth in Bangladesh: 1981-2005, Working Paper Series: WP 0604, Research Department, Bangladesh Bank, Dhaka, Bangladesh. Akhtaruzzaman, M. (2005).Inflation in the Open Economy: An Application of the Error Correction Approach to the Recent Experience in Bangladesh. Working Paper Series:WP 0602. Barro, R. J. (1995). Inflation and Economic Growth, NBER Working Paper 5326. Barro, R. J. and Sala-i-Martin (1995). Economic Growth, McGraw Hill, New York. Bruno, M. and W. Easterly (1996). Inflation Crisis and Long-Run Growth, Journal of Monetary Economics , 41, 1.
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Muhammad Ayyoub, Imran Sharif Chaudhry, Fatima Farooq 63 Christoffersen, P. and P. Doyle (1998).From Inflation to Growth, Eight Years of Transition, IMF Working Paper No. WP/98/100. Faria, J, R. and F, G. Carneiro (2001).Does High Inflation Affect Growth in the Long- Run and Short-Run?, Journal of Applied Economics , 4 (1), 89-105. Ghosh, A. and P. Steven (1998).Warning! Inflation May Be Harmful to Your Growth, IMF Staff Papers , 45(4), 672-710. Gokal, V. and S. Hanif (2004).Relationship between Inflation and Economic Growth, Economics Department, Reserve Bank of Fiji, Suva, Fiji, Working Paper2004/04.
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