General topics in economics

Main Page

General topics in economics

-Taxes

-Keynesian economics : It is the branch of economic theory associated with Keynes.In general Keynesian economics tend to support the following propositions:1)Aggregate demand plays a decisive role in determining the level of real outputThat is if the aggregate demand is high then the level of real output will be high .If the aggregate demand is low then the level of real output will be low.

--There is no automatic tendency for the level of savings and investment to be equal, as the level of investment is not primarily determined by the rate of interest.That is if the savings go up then the interest rates will come down since there are excessive deposits. But however the investment will not go up only because of the fact that the funds required for investments are cheaply available since it is dependent on several factors like the consumption levels the inflation rates, capacity utilisation of the industries.

--As a result ,economies can settle at positions with high unemployment and exhibit no natural
tendency for unemployment to fall.Thus if incase the unemployment is high ,then the demand will not increase until unemployment decreases and unemployment will not decrease until production increases which will inurn not increase until the demand increases .Thus a vicious circle might develop.

--Governments , primarily through fiscal policy. can influence aggregate demand to cut unemployment.That is if the government spends more then demand will increase and as a result the production will increase and then eventually the unemployment will decrease.

-Demand &Supply: Demand is the amount of goods and services that the consumers will be willing to buy.
For example if there are 100 people and each wants an apple then the demand is said to be 100 apples.On the other hand supply is the amount of goods and services that are available for consumption.From the example mentioned above if there are only 50 apples available then the supply is said to be 50 apples.The demand -supply mismatch is said to be 50 apples.

-Inflation : It is the rate of increase of prices of goods. It is usually taken on a weekly basis and
expressed in an annualised form. It is the simple average percentage of all the goods.For example there are 10 goods and out of those 10, the rate of 1kg. of tomato increases by .1% and the rate of potato rises by .2% and all the others are unchanged over the week .Then the rate of inflation for that week is given as ((0.1 + 0.2)/10)*52 = 1.52%

-Unemployment : It is the amount of people of working age population who are not employed.
For example if there are 100 people in the working age but there are only about 78 people employed then the unemployment is given as 100 - 78 = 22.
However the unemployment rate is given as
= ((unemployment)/(total working age population))*100
In the case of the above example the unemployment rate is ((22)/100)*100 = 22% 5)

-Infrastructure : It is all the physical facilities for doing trade. For example telecommunication
systems , roads , ports ,water supply etc.

-Macroeconomics : The study of the whole economic systems by adding up the functioning of the individual economic units.That is for example the study of the economy of a country can be considered to be macroeconomics .It can be done by studying all the individual components of an economy like the agriculture, industries, trade.

-Microeconomics: It is the smaller version of macroeconomics . It is the study of smaller components like the economy of a household and so on.

- Depression : It is the downturn the downturn in a business cycle in which there is unsustained high level of unemployment. The three or four years following 1939 experienced the last major recession of the world economy.That is , before the Great Depression there was a very furious increase in production however when then demand fell then many factories got shut down and unemployment increased to unprecedented levels.

-Fiscal Drag : The effect of inflation upon effective tax rates, or sometimes, the effect of growth in nominal GDP on tax revenues.That is the effective tax rates will be low if the inflation rate is very high and vice versa, since with increase in inflation the value of money collected as tax decreases.

-GDP(Gross Domestic Product) : It is a measure of the total flow of goods and services produced by a country over a specified time period(a quarter or a year),It is obtained by valuing output of goods and services at market prices and then adding them all up. All the intermediate goods are excluded and only the goods used for final consumption or investment goods are included. This is because the value of intermediate goods is automatically in that of final goods.
GDP = consumption + investment + government spending + (exports - imports)
"Gross" means depreciation of capital stock is not included. With depreciation, with net investment instead of gross investment, it is the Net domestic product. Consumption and investment in this equation are the expenditure on final goods and services. The exports minus imports part of the equation (often called cumulative exports) then adjusts this by subtracting the part of this expenditure not produced domestically (the imports), and adding back in domestic production not consumed at home (the exports).

- Purchasing power parity (PPP): The purchasing power parity method accounts for the relative effective domestic purchasing power of the average producer or consumer within an economy. This can be a better indicator of the living standards of less-developed countries because it compensates for the weakness of local currencies in world markets. The PPP method of GDP conversion is most relevant to non-traded goods and services. There is a clear pattern of the purchasing power parity method decreasing the disparity in GDP between high and low income (GDP) countries, as compared to the current exchange rate method. This
finding is called the Penn effect.

-GDP per capita : The value of all final goods and services produced within a nation in a given year divided by the average population for the same year.

-Black economy : The black market or underground market is the part of economic activity involving illegal dealings, typically the buying and selling of merchandise or services illegally. The goods themselves may be illegal to sell (e.g. weapons or illegal drugs); the merchandise may be stolen; or the merchandise may be otherwise legal goods sold illicitly to avoid tax payments or licensing requirements, such as cigarettes or unregistered firearms. It is so called because "black economy" or "black market" affairs are conducted outside the law, and so are necessarily conducted "in the dark", out of the sight of the law.
Black markets develop when the state places restrictions on the production or provision of goods and services. These markets prosper, then, when state restrictions are heavy, such as during a period of prohibition, price controls and/or rationing. However, black markets are currently present in any known economy.