Economics

• Microeconomics


  Concerns the behavior of small, individual economic units such as individual households, business firms, and industries
• Macroeconomics


  Studies the economy as a whole, including topics such as national income, unemployment, and economic growth
• Normative economics


  Statements of 'what ought to be' based on value judgments or personal opinions
• Positive economics


  Statements of 'what is' based on facts and evidence
• Fallacies in economics


  • Fallacy of composition
  • Post hoc fallacy
  • Wishful thinking
  • Generalisations
• Fallacy of composition


  Assuming what is true for one individual will be true for all
• Post hoc fallacy


  Assuming that because one event follows another, the second must be the result of the first
• Wishful thinking


  Believing what we want to believe and ignoring conflicting information or facts
• Generalisations


  Conclusions drawn based on limited or small samples
• Economic law


  A general statement of what will happen given certain circumstances, a statement of tendency
• Economic model


  A simplified picture of reality, used to describe, predict, and understand the complexities of the real world
• Assumptions


  Generalizations based on rational behavior and logical reasoning, used in constructing economic models
• Economic theory


  Principles derived from relevant economic facts, establishing cause and effect relationships
• Economic reform


  Government policy aimed at improving the efficiency of resource allocation
• Economists use scientific methodology to study economic behavior, deriving principles through inductive and deductive approaches
• Inductive methodology involves moving from facts to theory, while deductive methodology involves moving from theory to facts
• Fallacies are misleading arguments that economists must be aware of and avoid
• Economic analysis and theory involve organizing facts into principles, laws, models and theories, which can then be combined with facts to formulate economic policies
• Circular flow model


  A model that describes the circular flow of income and expenditure in an economy
• PPC


  Production Possibility Curve - a model that shows the maximum possible combinations of two goods that an economy can produce
• Models rarely answer the questions that policy makers are confronted with therefore value judgments are needed to make predictions regarding possible economics outcomes
• Economic models are built based on economic assumptions
• Assumptions


  Generalizations based on rational behavior and logical reasoning
• One assumption in constructing a PPC is that an economy is involved with two goods produced
• Economic Theory


  Deriving economic principles from relevant economic facts. It establishes cause and effect relationship. It helps to bridge the gap between economic model and reality
• Theory is developed by building and testing economic models
• The Irving Fisher theory of interest rate


  An economic theory which describes the relationship between inflation and both real and nominal interest rates
• Economic Reform


  A government policy aimed to improve the efficiency with which each nation allocates its resources
• Economic Policy


  A course of action designed by government to influence or control economic behavior and its consequences
• Examples of economic policies

  • Decisions made about government spending and taxation, about the redistribution of income from rich to poor, and about the supply of money
• Economic Policy

  The deliberate attempt to generate increases in economic welfare
• Policy Objectives or Macroeconomic Policy Objectives


  The achievement of a desirable level of a particular economic variable
• Main economic objectives agreed by modern policy makers in Fiji

  • Stable and Sustainable Economic Growth and Development
  • Price Stability and Full Employment
  • Favourable Balance of Payment with the rest of the world
  • An Equitable (fair) Distribution of Income
• Stable and Sustainable Economic Growth and Development


  For developing economies, further development is often the primary goal, and can be summarized as the desire to increase the longevity of the population, increase access to education, and attain a decent standard of living. Fiji targets an annual economic growth rate of 5%
• Price Stability and Full Employment


  Stable prices mean average prices rising by only a small amount, such as Fiji aims to manage inflation around 3%. Full employment occurs when the labour force is fully employed in productive work
• Favourable Balance of Payment with the rest of the world


  This means that a country is able to 'pay its way' in the world. Fiji ensures that there is enough in foreign reserves to cover up to 4 – 5 months of imports. It also targets annual budget deficits at less than 3% of GDP and maintaining government debt at sustainable level
• An Equitable (fair) Distribution of Income


  An equitable distribution of income means that the gap between rich and poor is not excessive, but still enough to create incentives to work. One way Fiji ensures fair distribution of income is through progressive taxation system. Another initiative of government to reduce poverty is implementation of social wages. Social wages is the right to enough income for living as determined by basis of citizenship rather than employment. Social wages are those things like free bus fare, free medicine, subsidizing of your electricity, subsidizing of water. It is one way in assisting people who are most marginalized
• Policy Instruments


  The means by which the aims and objectives might be achieved. The main policy instruments available to meet macroeconomic objectives are monetary policy and fiscal policy
• Assumptions


  A thing that is accepted as true or as certain to happen without proof
• Deductive Method


  Concerned with developing a hypothesis based on existing theory and then designing a research strategy to test the hypothesis