4/24/17: Laffer Cruve/Supply Side Economics/Reaganomics

• Supply Side Economics or Reaganomics-
• Manipulating aggregate supply by enacting policies to stimulate incentives to work, save & invest.
• May include tax cuts, which would increase disposable income.
• Laffer Curve-
• Displays the theoretical relationship between tax rates & government revenue.

• 3 Criticisms of the Laffer Curve-
1.  Imperial evidence suggests that the impact of tax rates on incentives to work, save & invest are small.
2. Tax cuts also increase demand, which can fuel inflation.
3. Where the economy is actually located on the curve, is difficult to determine.

4/20/17: Types of Inflation

• Inflation-
• Increase in level of prices
• Ideal inflation rate is 2-3%
• Deflation-
• Decrease in level of prices
• Disinflation-
• Rate of inflation decreases
• Hyperinflation-
• Rate of inflation increases

                                          

4/18/17: Phillips Curve

• Short Run Phillips Curve-
• In the short-run, the Phillips curve represents a trade off between inflation & unemployment.
• Inverse relationship (as inflation increases, unemployment decreases)
• Each point on the Phillips curve corresponds to a  different level of output.

• Long-Run Phillips Curve- 
• Occurs at natural rate of unemployment
• Represented by a vertical line
• There is no trade-off between inflation & unemployment in the long-run.
• In the long-run, the economy produces at the full employment output level.
• the LRPC (long-run phillips curve) will only shift if the LRAS curve shifts. 
• Increase in unemployment (Un) will shift LRPC right.
• Decrease in unemployment will shift LRPC left.

• Short-run-
• If inflation persists & the expected rate of inflation rises, then the entire SRPC moves upwards.
• Brings about stagflation
• Stagflation-
• Simultaneous rise in inflation & unemployment.
• Supply Shocks-
• Rapid & significant increase in resource cost, which causes SRAS curve to shift.
• Ex) Depreciation of dollar, gas price increase
• If inflation expectations drop due to new technology, then the SRPC will move downward.
• Natural Rate of Unemployment related to...
• Frictional 
• Seasonal
• Structural 
• Misery Index-
• Combination of inflation & unemployment in any given year.
• Single digit misery is good

Monetary Policy Video

4/3/17: Loanable Funds Market

• Loanable Funds Market
• The loanable funds market is the private sector supply & demand of loans.
• This market brings together those who want to lend money (savers) & those who want to borrow (firms w/ investment spending projects)
• This market shows the effect on real interest rate
• Demand: Inverse relationship between real interest rate & quantity loans demanded.
• Supply: Direct relationship between real interest rate & quantity loans supplied.
• This is NOT the same as the money market (supply is not vertical).

• Prime Rate
• Interest rate that banks charge their most credit worthy customers.


• Better credit, better rate