Download 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.