Expections and Inflation

There is a great relationship between inflation and peoples expections, people made
their hypothesis about their future expectations , what will happen in the future
whether the prices of products will increase or decrease, these kinds of expectations
became the cause of inflation,

In the graph above we can see that the expectations of the people change the
demand curve from AD0 to AD1 and supply curve from AS0 to AS1 and the made a
change in both prices and income , Prices of the products changes from P0 to P1
and P2 and Y0 to Y1 and Y2 which cause the inflation.

Hyperinflation
A period of very rapid increases in the price level

In the graph above we can see supply curve AS and constantly increasing
demand curve AD0,AD1,AD2 AND AD3 which cause the increase in price level from
P0 TO P1, P2 AND P3 and became the cause od inflation
Phillips Curve
A graph showing the relationship between the inflation rate and the unemployment
rate.

In the graph above we have Philip curve showing the relationship between Inflation
and unemployment , the dots in the graph shows us that if the inflation increase the
rate of unemployment decrease .

ABSOLUTE ADVANTAGE VERSUS COMPARATIVE ADVANTAGE

absolute advantage The advantage in the production of a product enjoyed by
one country over another when it uses fewer resources to produce that product than
the other country does.
comparative advantage The advantage in the production of a product enjoyed
by one country over another when that product can be produced at lower cost in
terms of other goods than it could be in the other country.

The graph above shows us the prodcution Possibility Frontiers for Australia and New
Zealand before Trade, the graph at the left side shows us the production of wheat
and cotton in Australia. They are producing 600 bales of cotton and 200 bushels of
wheat,
Same like this the right grapgh shows us the production of wheat and cotton in new
Zealand , they are producing 200 bales of cotton and 600 bushels of wheat .
So we can see that before trade both countries are producing 150 bales of cottons
and 150 bushels of wheat,

The graph above shows us the the advantage of trade, when these two countries
made trade with each other there production in both products increase from 150 to
300
Laffer Curve
With the tax rate measured on the vertical axis and tax revenue measured on the
horizontal axis, the Laffer Curve shows there is some tax rate beyond which the
supply
response is large enough to lead to a decrease in tax revenue for further increases
in the tax rate.

In the graph above there is Tax revenue on X axis and tax Rate on y axis . this graph
shows us that if government increase the tax rate at first tax revenue will also

increase to a certain point , but after that point if there is still tax rate increasement
then the tax revenue will start to decrease.