and in the training and educating of less qualified workers. Consequently, profit margins are falling. Earnings have fallen in the past year, however stock prices continue to increase at record highs. This is evidence that investors have extremely high expectations for the future earnings growth of their investments. Investors will be disappointed if earnings continue to lag. If the economy does not slow down, then businesses will have no choice but to raise the prices of their goods and services, or they will run the risk of seeing their stock price drop.The small unemployment pool suggests that we should pay particular attention to inflation risks. The relationship between unemployment and inflation is illustrated by the Phillips Curve, named after the economist A.W. Phillips. This relationship exists because low employment is associated with high aggregate demand, and demand puts upward pressure on wages and prices throughout the economy. Therefore, it is probable that if the economy remains overheated, then inflation will rise. The model of the Philips Curve is also related to the Model of Aggregate Demand and Aggregate Supply. This model shows the relationship between the price level and the quantity of output of goods and services. The higher the aggregate demand, the greater the output, and in turn, the lower the unemployment rate. The lower the aggregate demand, the lower the supply, and the higher the unemployment rate. A decrease in the money supply, which can be accomplished by raising rates, will shift the aggregate demand curve to the left and move the economy to a point with low inflation and higher unemployment. This will not only keep the economy away from possible inflation, but it will also provide companies with a larger and more qualified applicant pool.Raising the Federal Funds Rate (interest rate that banks charge each other) and the Discount Rate (interest on the loans that the Fed makes to banks) w...
