Economic Ups and Downs
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Transcript Economic Ups and Downs
ECONOMIC UPS AND DOWNS
Inflation
Prices rise for 2 quarters or (6 months)
Prices tend to rise during periods of
expansion
Prices tend to decrease during times of
recession.
Deflation
Deflation is a decrease in the general price
level of goods/services.
Only 2 significant times its occurred:
At the end of WWI (1900s)
During the Great Depression (1920s)
Stagflation
Growth in GDP is stagnant (standing still) but
with rising prices (inflation).
Government tries to be
Superhero
President can adopt policies and enact laws
that affect the demand
(consumers/households) and supply
(businesses/producers) in an attempt to get
them to buy or to produce.
Policies/laws that President/government can
adopt are known as Fiscal Policy.
Who’s to Blame when Things Get
out of Whack?
People tend to blame government.
Government is blamed if
Economy experiences unemployment
We have decreasing gross domestic product
We have inflation
Economists believe government can help
alleviate these problems using Fiscal Policy.
Fiscal Policy – Government’s attempt to
stabilize economy through taxing &
government spending.
Supply Side & Demand Side
Economics
Supply-Side Policies
Demand side Policies
Stimulate production to spur
Stimulate consumption of
output
Cut taxes & government
regulations to increase
incentives for businesses &
individuals
Businesses invest & expand,
creating jobs; people work,
save, and spend more
Increasing investment and
productive lead to increase
output
goods/services to spur
output
Cut taxes or increase
federal spending to put
money into people’s hands
With more money, people
buy more
Businesses increase output
to meet growing demand
With output increasing the
economy grows & unemployment
goes down
What do we know?
People respond to incentives in predictable
ways.