11-14-07 - -economy is 6x larger than 1960 -growth is not...

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-economy is 6x larger than 1960 -growth is not steady -sometimes growth is fast/slow -called “business cycle -Price 6x higher than 1960 -generally, inflation exists because AD always increasing -AD always increases because money supply always increases Inflation -steady increase in price level -in LR, quantity theory of money says inflation is monetary phenomenon. -if money supply increases, then price increases -but in SR, 1) demand pull inflation 2) cost push inflation -Demand Pull inflation begins with process that increases AD (think increase in MS) -increase in MS AD increase -note: Price increases -eventually wages increase, SRAS decreases -note: Price increases again -another increase in MS, AD increases again -eventually wages increase again, SRAS decreases again. -Cost Push(CP) inflation begins with any process that decreases SRAS (think increase in the price of oil) -suppose OPEC increases price of oil -this will decrease SRAS -note: P increases -then fed increases MS, AD increases -Price increases again
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This note was uploaded on 12/12/2008 for the course ECON 29486 taught by Professor Denniswilson during the Fall '06 term at Western Kentucky University.

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11-14-07 - -economy is 6x larger than 1960 -growth is not...

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