Explain what happens to inflation during the business cycle. Give an intuitive explanation as to why inflation changes the way it does over the business cycle
What will be an ideal response?
Inflation will rise during an expansion and fall during a recession. Inflation usually rises near the end of an expansion. Recessions consistently lower the inflation rate. The average decline in the inflation rate has been about 2.5 percentage points during U.S. recessions since 1950. The business cycle has this effect on inflation because spending is usually strong during an expansion and firms will find it easier to raise prices. During a recession the opposite is true. Spending by firms and households is weak and firms might not be able to sell their goods if they aggressively raise prices.
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A . What is the theory of creative destruction? b. According to this theory, do we need to worry about the fact that our local power utility has a monopoly in the provision of electricity?
Which of these activities will most likely result in an external benefit?
a. Ted purchases a dilapidated house and cleans up the yard and exterior of the house. b. Tim purchases an iPhone and downloads new apps. c. Terri purchases a new SUV and drives it to work every day. d. Thomas purchases a suit and wears it on his interviews.