Unit 5 & 6


Disinflation
-Reduced inflation rate from year to year seen in lrpc
-Occurs when ad declines

Deflation
-General decline in the price level

Hyperinflation
-Economy experiences a high and unusual rate of inflation which can decrease value of local currency

Supply-side economics
-Changes in AS not AD 
-Trickle-down effect
-Economists support policies that promote GDP growth by arguing that high marginal tax rates along with the current system of transfer payments (these transfer payments: unemployment compensation, welfare programs provide disincentives to work, invest, and undertake entrepreneurial ventures 
-To determine the level of inflation, unemployment rates, economic growth-aka Reaganomics

Laffer-Curve
Image result for laffer curve-As tax rates increase from zero, tax revenues increase from zero to some maximum level and then decline 
-Depicts theoretical relationship between tax rates and government revenue
-3 criticisms of the laffer curve
-Empirical evidence suggests that the impact if tax rates on incentives to work, save, and invest are small
-Tax cuts also increase demand which can fuel inflation
-Where the economy is actually located, on the laffer-curve is difficult to determine

Economic Growth
-Sustained increase in real GDP over time and per capital
Condition for growth:
-Rule of law
-Respect for Private property
-Political and economic stability
-Willingness to sacrifice current consumption 
-Saving 
-Sound Legal economic institution
-Economic Freedom 
-Trade
Image result for physical capitalPhysical Capital
-Product of investment such as tools, factories, infrastructure
-Sensitive to interest rates and expected returns
Technology and Productivity
-Research and development
-Productivity is output per worker 
-more technology increases productivity; innovations yields increase in technology
Human Capital
-Education, Economic Freedom, right to acquire private property, incentives, cleans water, stable food supply, Access to technology
-People are a country's most important resource
Phillips Curve
-Short Run Phillip Cure Interest rate and inflation are inversely proportional
Image result for short run phillips curve
-Long Run Phillip Curve exist at the natural rate of unemployment independent from inflation

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