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 Raeganenomics
-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, government revenues increase from zero to some maximum level and then decline
3 criticisms of the laffer curve
-empirical evidence suggests that the impact of 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