Unit 5

Disinflation: Reduction in the inflation rate from year to year which can be seen in the LRPS. this also occurs when AD declines.

Deflation: General decline in PL

Hyperinflation: when the economy experiences unusual high rise of inflation.

Adverse supply shock- SRPC intersect LRPC 

Supply side economics also known as (Reaganomics) Triple balance effect. (lower taxes and decrease regulation) (lower taxes and provide positive work incentives and thus shift the AD curv to the right)

Changes in AS, not AD. Determines the level of inflation unemployment rates and economic growth. 

The laffer curve: theoretical relationship between tax rates and government revenue. As rate increases from 0 tax revenue increases from 0 to some maximum level, then declines. 

3 criticism:
1. evidence suggests that the impact of tax rates on incentives to work, save and invest are small.
2. Tax cut also increase demand, which can fuel inflation
3. where the economy is actually located on the curve is difficult to determine.

Phillips Curve
Inverse relationship between unemployment and inflation
Long Run Phillips Curve
Misery Index- the combination of inflation and unemployment in any given year.

Single digit misery is good.