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Fluctuations

In: Social Issues

Submitted By eledano89
Words 361
Pages 2
Why do we care about inflation?
Unexpectedly high inflation transfers wealth

thought in the 1960s: a little inflation is a good idea. A little inflation makes labor markets(the modern market economy) work better. People will accept lower real wages but they wouldn’t accept lower nominal wages.
Helps the economy find the right real wages.

Cost push
Demand pull

hyperinflation a result of bad economic policy
e.g. Germany 1923

hyperinflation in Zimbabwe didn’t focus on the fiscal policy, just on the monetary. Zimbabwean currency became extinct. Govt spending is 97% of GDP.

The quantity eqn. of money tells you what inflation should be.

ECONOMIC FLUCTUATIONS P.T.O

Chapter 11: Changes in Potential GDP and Real GDP causes econ. Fluctuations
E.g. technological changes= higher productivity, higher production

Sunspots : a random variable that does not directly affect economic fundamentals (such as endowments, preferences, or technology).

K-waves: Averaging fifty and ranging from approximately forty to sixty years, the cycles consist of alternating periods between high sectoral growth and periods of relatively slow growth. Kondratiev identified three phases in the cycle: expansion, stagnation, recession.

Most fluctuations come from changes in Aggregate demand NOT SUPPLY.

Stability= point where spending equals production (equilibrium)

* Suppose Government or Businesses increased their (constant) spending?

what happens to real production?
What else happens in the economy?
Govt spending shrinking will shrink the economy.
Govt cuts its spending someone’s income goes down.

“ THE MULTIPLIER EFFECT “- Every time there is an injection of new demand into the circular flow there is likely to be a multiplier effect. This is because an injection of extra income leads to more spending, which creates more income, and so on. The…...

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