Unit 5

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  • Disinflation
    • this also occurs when aggregate demand declines
    • a reduction in inflation rate from yr to yr seen in LRPC
  • Deflation
    • general decline in the price level
  • Hyperinflation
    • when economy experiences a high and unusual rate of inflation which can decrease value of local currency
  • Supply-side economics
    • changes in AS not AD 
    • to determine the level of inflation, unemployment rates, economic growth
    • aka Reaganomics
    • 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 
  • Laffer-Curve
    • depicts theoretical relationship between tax rates and government revenue
    • as tax rates increase from zero, tax revenues increase from zero to some maximum level and then decline 
    • 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

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