Almost all variation in living standards is attributable to differences in countries’ productivity—that is, the amount of goods and services produced from each hour of a worker’s time.
PRINCIPLE #9: PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY
Simply define as inflation, an increase in the overall level of prices in the economy. What causes inflation? In almost all cases of large or persistent inflation, the culprit turns out to be the same—growth in the quantity of money. When a government creates large quantities of the nation’s money, the value of the money falls.
PRINCIPLE #10: SOCIETY FACES A SHORT-RUN TRADEOFF BETWEEN INFLATION AND UNEMPLOYMENT
Reducing inflation is often thought to cause a temporary rise in unemployment. The curve that illustrates this tradeoff between inflation and unemployment is called the Phillips curve, after the economist who first examined this relationship. The tradeoff between inflation and unemployment is only temporary, but it can last for several years. The Phillips curve is, therefore, crucial for understanding many developments in the economy. In particular, policymakers can exploit this tradeoff using various policy instruments. By changing the amount that the government spends, the amount it taxes, and the amount of money it prints, policymakers can, in the short run, influence the combination of inflation and unemployment that the economy experiences. Because these instruments of monetary and fiscal policy are potentially so powerful.
TEN PRINCIPLES OF ECONOMICS
#1: People Face Tradeoffs
#2: The Cost of Something Is What You Give Up to Get It
#3: Rational People Think at the Margin
#4: People Respond to Incentives
#5: Trade Can Make Everyone Better Off
#6: Markets Are Usually a Good Way to Organize Economic Activity
#7: Governments Can Sometimes Improve Market Outcomes
#8: A Country’s Standard of Living Depends on Its
#9: Prices Rise When the Government Prints Too Much Money
#10: Society Faces a Short-Run Tradeoff between Inflation and Unemploymemt
