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Employment and inflation

Employment and inflation. Inflation. Money is like everything else: the more there is of it the less value it has So if there is a lot of money in an economic system ? The value of the money falls and the prices of good rise. Good for

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Employment and inflation

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  1. Employment and inflation

  2. Inflation • Money is like everything else: the more there is of it the less value it has • So if there is a lot of money in an economic system ? • The value of the money falls and the prices of good rise

  3. Good for Debtors – because the value of their debt diminishes with the value of the currency US Debt – the value of the US deficit diminishes Bad for People on fixed incomes – they can afford to buy less People who have saved a lot of money – their savings are worth less Banks – their loans are worth less Inflation is

  4. Employment • As more people have jobs, they make more money, thus pumping more money into the economic system • More money (as we established) means higher inflation

  5. So government tries to balance inflation and employment

  6. How? • Spending – creates jobs but puts money into the system • Taxes – raising taxes pulls money out of the system (so long it isn’t then spent) • Interest rates – the government manipulates the cost of borrowing money • Government securities – selling of government bonds can pull money out of the system

  7. Why not just set prices by law? • Prices are always set below the actual value of the good (Otherwise why would you want to control wages?) • Leads to shortages of the good • Leads to hoarding • Leads to the black market (where goods are traded at their real value) • Coercive

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