ECON308 Study Guide - Midterm Guide: Financial Institution, Federal Deposit Insurance Corporation, Commercial Bank
18 Jan 2017
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Document Summary
The federal reserve controls the money in the economy, and plays a major role in the circular flow diagram. Price inflation occurs when demand is high but production is low. When inflation occurs, money is losing its purchasing power. Inflation can be sustained if you constantly and gradually feed money into the economy. Other countries money loses value over time, but not america"s. High inflation countries need to make more money every few years. Deflation gradual decrease in the level of prices and opposite of inflation, with a graduate increase in the value of money(reluctance to spend money, defer purchase until money is worth more, causes a recession) Debts owed will not get deflated, but any assets will. A lot of our money is abroad because people want to hold on to stable money. Inflation undermines money as a store of value.
