Rob taught us: > Inflation is a product of supply side economics. All economies require > inflation for growth. An inflationary rate between 2 1/2 and 3 percent is > considered healthy. An economy with a zero or negative inflationary rate is a > bad thing, as this indicates zero or negative growth. A rise in the > inflationary rate occurs when the demand for products exceeds manufacturers > abilities to produce. Therefore the price of manufactured goods increases. In > our current situation the economy has become too "hot". There are too many > people with too much money to spend because we have experienced rapid widespread > growth. What is worse people have been spending excessively on credit. > Unemployment is exceptionally low. This is a bad thing because there are more > jobs than there are people to fill them, particularly skilled jobs. Employers > must pay workers more in order to hire and keep them. Factories must pay > overtime to keep up with the demand of buyers. > > Once runaway inflation starts, (as experienced in the 1970s), it is very > difficult to contain. The only known cure for inflation is the regulation of > interest rates. If interest rates are raised fewer people will purchase goods, > durable goods in particular which require financing. If money becomes too > expensive to borrow then things such as home and auto sales drop. Demand falls, > unemployment increases, and the inflation returns to safe levels. This of > course is why interest rates have gone up so dramatically in the past year. The > Federal Reserve Board raises rates to head off inflation. The opposite is true > for a sluggish economy in which rates may be lowered to give the market a > jump-start. Fuel prices can also contribute to inflation since it is a critical > product which involves the entire economy. Because OPEC has cut back production > the price of oil has gone up dramatically. The increase then trickles down into > all other industry and suppliers who depend on oil and fuel. > > Thank you for attending Rob's economics class. Grades will be posted. > > Rob Goodale, RPT > Las Vegas, NV > I just learned more then I ever did in any economics college class - of course I'm not sleeping at my desk now. Holy moly Rob, you must have been laying out the course outline on your honeymoon. :) Doug Mahard
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