Ch.12 14


Published on

Published in: Business, Technology
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Ch.12 14

  1. 1. Inflation and Deflation Chapter 12
  2. 2. What is Inflation? <ul><li>An increase in the average level of prices. When economists measure the CPI, if it is higher than the previous year, then inflation occurred </li></ul>
  3. 3. Demand Side Inflation <ul><li>An increase in price level that occurs because of a change in demand </li></ul><ul><li>Example: The Fed increases the money supply. As a result of more money circulating in the economy, people end up buying more goods and services. With the increase in demand, prices will increase. </li></ul>
  4. 4. Supply Side Inflation <ul><li>An increase in the price level that occurs because of a change in supply. </li></ul><ul><li>Example: A major drought lowers the output of agricultural goods. Because of the limited quantity of goods available, the price level increases. </li></ul>
  5. 5. The Effects of Inflation <ul><li>Inflation effects both producers and consumers </li></ul><ul><li>People on a fixed income: As inflation increases, individuals on a fixed income (pension, social security) have less purchasing power. </li></ul><ul><li>Inflation and past decisions: Suppose a contractor signs a contract to build a shopping mall for $30 million. He estimated costs to be approximately $28 million, and thus would earn a $2 million profit. Then with inflation, the price of labor and building materials increase and the mall will actually cost $31 million. </li></ul><ul><li>Consumers tend to spend less money, meaning producers will have to cut costs (usually labor) </li></ul>
  6. 6. Deflation <ul><li>A decrease in the price level, or average level of prices </li></ul>
  7. 7. Business Cycle <ul><li>The up and down phases of the economy </li></ul><ul><li>Phases of the Business Cycle : </li></ul><ul><ul><li>Peak – highest level the economy is performing at before a recession (GDP) </li></ul></ul><ul><ul><li>Contraction – a decrease or downward trend in GDP. If GDP decreases for two consecutive quarters, economists consider this a recession. </li></ul></ul><ul><ul><li>Trough – the low point in economic productivity or GDP </li></ul></ul><ul><ul><li>Recovery – period in which GDP is rising </li></ul></ul><ul><ul><li>Expansion – refers to the growth in GDP beyond its previous peak </li></ul></ul>
  8. 8. Business Cycle
  9. 9. Factors Used to Predict the Business cycle <ul><li>1. Stock Market </li></ul><ul><li>Unemployment </li></ul><ul><li>Money Supply </li></ul><ul><li>Consumer Price Index </li></ul><ul><li>Inflation </li></ul>
  10. 10. Factors that Influence Economic Growth <ul><li>Natural Resources </li></ul><ul><li>Labor </li></ul><ul><li>Capital ($$$$$) </li></ul><ul><li>Human Capital </li></ul><ul><li>Technology </li></ul><ul><li>Incentive </li></ul>
  11. 11. Chapter 13 – Fiscal and Monetary Policy <ul><li>Government fiscal and monetary policy is usually designed to target two specific areas of the economy: unemployment and inflation </li></ul>
  12. 12. Fiscal Policy <ul><li>Changes the government makes in spending or taxation to achieve its economic goals </li></ul><ul><ul><li>Expansionary – Increase spending and/or decrease taxes (goal is to decrease unemployment) </li></ul></ul><ul><ul><li>Contractionary – Decrease government and/or increase taxes (goal is to decrease inflation) </li></ul></ul>
  13. 13. Monetary Policy <ul><li>Changes the Fed makes in the money supply </li></ul><ul><ul><li>Expansionary – An increase in the money supply (Reduce Unemployment) </li></ul></ul><ul><ul><li>Contractionary – A decrease in the money supply (Reduce Inflation) </li></ul></ul>
  14. 14. Stagflation <ul><li>The combination of high unemployment and inflation at the same time </li></ul>
  15. 15. Chapter 14 – Taxes and Spending <ul><li>Three Major Federal Taxes : </li></ul><ul><li>Personal Income Tax – a tax a person pays on their income (We also pay state income tax in NY) </li></ul><ul><ul><li>Seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming </li></ul></ul><ul><li>Corporate Income Tax – a tax corporations pay on their profits </li></ul><ul><li>Social Security Tax – a tax generated from a individuals or businesses income </li></ul>
  16. 16. Other Taxes <ul><li>Sales Tax – taxes applied to the purchasing of goods </li></ul><ul><li>Excise Tax – taxes placed on </li></ul><ul><li>certain goods like gasoline </li></ul><ul><li>and tobacco </li></ul><ul><ul><ul><li>Taxes on gasoline in NYS are about .48 a gallon </li></ul></ul></ul><ul><li>Property – taxes on property, such as your home </li></ul>
  17. 17. Types of Income Tax <ul><li>Income taxes can be proportional, progressive, or regressive: </li></ul><ul><li>Proportional – a tax that everyone pays at the same rate, regardless of their income (often called a flat tax) </li></ul><ul><li>Progressive – a tax that increases as one’s income rises. Progressive tax structures are usually capped at some rate. (USA) </li></ul><ul><li>Regressive – a tax that decreases as income rises </li></ul>
  18. 18. How does the government spend our money? <ul><li>National Defense – 20% </li></ul><ul><li>Income Security – 14% </li></ul><ul><li>Social Security – 20% </li></ul><ul><li>Medicare – 12% </li></ul><ul><li>Interest – 7% </li></ul><ul><li>Other – 27% </li></ul>
  19. 19. National Debt <ul><li>The total amount of money that the United States owes its creditors </li></ul><ul><li>Current National Debt </li></ul><ul><li>Budget Surplus – The situation in which federal government expenditures are less than federal government revenues </li></ul><ul><li>Budget Deficit – The situation in which federal government expenditures are greater than government tax revenues </li></ul>