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Economic Concepts I Am Learning That May Help You Too

Determined_-1Determined_-1 Member
edited October 2021 in General 919 karma

Hi all,

In an effort to keep myself accountable, I am going to share some concepts that I was initially unfamiliar with onto this forum. The purpose of this is to not only make sure that I am not merely spewing out memorized facts, but also to help others who are unfamiliar with Economics. If there are any errors, please let me know. If you don't find this helpful, feel free to not read.

Inflation
Inflation is the economic concept of prices constantly going up. An example of this is how in the movie Pride and Prejudice, Mr. Darcy is known as one of the richest men in Britain even though his income was only $10,000 in 1813. Inflation highlights the question: Why are prices going up?

Why does Inflation happen?
Inflation happens as a result of at least one of the following concepts.
1. Cost-push Inflation

Cost-push inflation is when businesses have a greater increase in costs incurred, and therefore as a result need to push some of these costs onto customers in order to keep their businesses surviving. These increased costs can be incurred as a result of workers demanding more pay, raw material prices (such as oil) going up, etc.

2.Demand-Pull Inflation
An easier way of remembering demand-pull inflation is recognizing that it is when "there are too many dollars, and too few goods". Basically, it is when consumers have much money and are all chasing after goods that cannot keep up with the demand. Higher prices are the result of the demand being too high.

3.Printing Money

Governments want to see their economy doing well, and to do this, they may print more money and have an increased circulation of money going around. However, with the increase of money circulation, the value per note becomes less. Instead of this allowing consumers to buy more items, this just causes prices for individual items to go way up (for example, one set of bananas may have costed $2 before the circulation of money, but now $5 because the value of the dollar decreased as more notes were produced). The Window of Opportunity is the point of time where while more money is circulating, prices are still low since it takes time for the value of money to decrease.

Interesting fact about the Window of Opportunity:
- People can grow the economy during this time by spending more and thus allowing for businesses to hire more workers. This is all before the Window of Opportunity "closes" and the value of money decreases (AKA, time catches up with the new value of money).

How can governments cause inflation (prices going up)?

Governments can cause inflation by decreasing taxes, thereby allowing people to have more disposable income to spend. With this disposable income, in the longer term, increased demand causes increases in prices.

NOTE: If I got anything wrong here or if in anyone has anything they wanna add to help others, please comment.

Sources:

https://www.investopedia.com/terms/d/demandpullinflation.asp

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Comments

  • nicolasvaldeznicolasvaldez Core Member
    16 karma

    Cool! But why here lol

  • Determined_-1Determined_-1 Member
    919 karma

    @nicolasvaldez I mentioned above that it was my intention to help others and myself in trying to break down a dense subject that the LSAT incorporates, whether that be on LR or RC.

  • nicolasvaldeznicolasvaldez Core Member
    16 karma

    @Determined_ Right, but how does you explaning inflation to us help us in breaking down dense subject matter that we would see on the lsat, if its unrelated to inflation lol. Are you just trying to get your thinking in order? I don't really see the point of this here, an LSAT prep-course.

  • Determined_-1Determined_-1 Member
    edited November 2021 919 karma

    @nicolasvaldez So sometimes questions in LR and RC passages do discuss Economic concepts that myself and many others are not familiar with. Being familiar with a topic can make approaching such questions and RC passages a bit easier. I've seen kind people on 7Sage post similar posts and comments where they discuss useful topics in their own words (such as science-related topics), and it can be really helpful for familiarizing ourselves with these topics. I wrote this post about inflation specifically because I've already worked on a couple of RC passages discussing inflation and realized I need to be more well-read on this subject matter. My goal was also to help at least one person in the process. My post was inspired by others' posts, so needless to say I'm grateful for the help of others in this way.

    As I mentioned in my post-- if you don't find this helpful, that is completely fine. This forum is a great, positive place where students can offer and receive help in their studies, and not everything may be useful to you or I. In any case, I hope you find posts that are helpful to you :) . Take care.

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