Economic Ups and Downs.

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Presentation transcript:

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 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 Stimulate consumption of 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.