Unit 5 -

Unit 5 - 

• 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