Econ

• Economic problem


  The fundamental challenge facing all societies, which is how to satisfy unlimited wants and needs with limited resources
• Three basic economic questions

  • What to produce?
  • How to produce?
  • For whom to produce?
• What to produce?


  Every economy must determine what goods and services are to be produced and in what quantities of each to produce
• How to produce?


  The company must decide on how to use the resources to produce goods and services
• For whom to produce?

  Goods and services will be distributed to buyers based on their ability and willingness to pay its existing market price
• Economic issues


  • Inflation
  • Poverty
  • Economic inequality
  • Trade and foreign policy
  • Labor, unemployment and migration
• Macroeconomics


  The branch of economics that studies the behavior and performance of an economy as a whole
• John Maynard Keynes


  The founder of Keynesian economics and the father of modern macroeconomics
• Keynesian economics


  A macroeconomic theory of total spending in the economy and its effects on output, employment, and inflation

  
• The Great Depression


  The greatest and longest economic recession in modern world history, running between 1929 and 1941
• National income accounting


  A bookkeeping system that a government uses to measure the level of the country's economic activity in each time
• Metrics used in measuring/calculation of national income accounting

  • Gross Domestic Product (GDP)
  • Gross National Product (GNP)
  • Gross National Income (GNI)
• Gross Domestic Product (GDP)


  The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period
• Measurements of GDP


  • Consumption
  • Government spending
  • Capital spending by businesses
  • Net exports
• Nominal GDP


  An assessment of economic production in an economy that includes current prices in its calculation
• Real GDP


  An inflation-adjusted measure that reflects the number of goods and services produced by an economy in a given year, with prices held constant from year to year

  
• GDP per capita


  A measurement of the GDP per person in a country's population, indicating average productivity or average living standards
• Purchasing Power Parity (PPP)


  A money conversion rate used to express the purchasing powers of different currencies in common units
• Gross National Product (GNP)


  An estimate of the total value of all the final products and services turned out in a given period by the means of production owned by a country's residents
• Gross National Income (GNI)


  The total amount of money earned by a nation's people and businesses, including income from overseas sources
• Inflation


  An increase in the prices of goods and services, measured by the Consumer Price Index (CPI)

  
• Consumer Price Index (CPI)

  A measure that examines the weighted average of prices of a basket of goods and services consumed by households
• Demand-pull inflation


  Inflation caused by an increase in aggregate demand with supply remaining the same or decreasing, leading to shortages

  
• Cost-push inflation


  Inflation caused by increases in the cost of wages and raw materials, decreasing aggregate supply

  
• Positive effects of inflation

  • Higher profits
  • Higher investment
  • Higher production

  
• Negative effects of inflation

  • Difficult for consumers to purchase more goods
  • Bad effect on poor labor force
  • Reduces living standards
  • Harmful for creditors
  • Reduces purchasing power
  • Decreases buying power of currency
  • Increased poverty level
• Fiscal policy


  The use of government spending and taxation to influence the economy
• Monetary policy


  A set of tools used by a nation's central bank to control the overall money supply and promote economic growth
• Fiscal measures to control inflation

  • Reduction of unnecessary spending/expenditure
  • Increase in taxes
  • Increase in savings
  • Reduce public debt
• Monetary measures to control inflation

  • Credit control
  • Demonetization of currency
  • Issue of new currency
• Other measures to control inflation

  • Increase production
  • Wage policy
  • Price control

  
• Types of inflation


  • Creeping inflation (less than 2%)
  • Walking inflation (around 5%)
  • Running inflation (10%)
  • Galloping inflation (25%)

  
• Economic inequality


  The unequal distribution of income and opportunity between different groups in society
• Disparity


  A noticeable and usually significant difference or dissimilarity
• Inequality


  The quality of being unequal or uneven
• Privilege


  Refers to a person with wealth and is considered as part of the upper class in society
• Possible causes of inequality

  • Educational attainment
  • Socioeconomic status
  • Corruption
• The top 1% controls 46% of the world's wealth
• Aspects of economic inequality

  • Wealth
  • Asset
  • Physical environment
  • Opportunity
  • Gender
  • Income
• Income inequality


  The disproportionate distribution of total national income among households