Goodale's Economics 101 was Re: surcharge/precursor of INFLATION

[Doug Mahard]

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