NOTES: 2/27/01
INFLATION- a period of increased spending that causes rapid rises in prices.
*Demand for goods & services is greater than
services.
*Prices increase faster than wages increase.
PROBLEMS:
-people on fixed incomes are hurt the most.
-"Dollar is not worth a dollar"
-When incomes do not keep pace wit rising prices
the standard of living goes down.
**Inflation is not part of the business cycle, Inflation can happen at anytime: it can occur at any phase.
DEFLATION - A decrease in the general level of
prices.
*Occurs during a Recession & Depression
phase.
*Prices of products are lower, but people have
less money.
PRICE INDES - measures changes in prices using
the price for a given year as the base
PRODUCTIVITY - Amount of output produced per
unit of input.
The Role of Government:
federal government has the responsibility of helping to solve problems in the economy.
*Govenment tries to regulate the business cycle,
to keep it in a time of proserity as long as
possible.
**GOVERNMENT TRIES TO KEEP INFLATION
DOWN.
STEPS THE GOVERNMENT MAY TAKE:
I. To Curb Inflation
1. Reduce Government Spending
2. Increase Taxes
II. To Fight Recession & Depression
1. Govenment may provide more for
people to spend, by providing jobs.
2. Cutting taxes.
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