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The Seven Core Principles of Economics
Economics is the social science that deals with the production, distribution, and consumption of goods and services and with the theory and
management of economies or economic systems. All economists agree on one thing, the economy is large and it is unpredictable. However,
throughout the years economists have developed some simple but widely applicable principles that are useful when trying to understand decisions that
are made by everyday people to the workings of highly complex markets. There are Seven Core Principles of Economics. These principles are: Scarcity
Principle, Cost–Benefit Principle, Principle of Unequal Costs, Principle of Comparative Advantage, Principle of Increasing Opportunity Cost,
Equilibrium Principle, and...show more content...
The concept of cost–benefit sounds simple enough but to apply it you have to decide how to measure relative costs and benefits which can become
tricky. Different people may feel differently about the value of different things. A classic example is whether a not you should walk downtown to
save $100 on a $500 dollar guitar. The benefit here is saving $100. The cost being the time it takes for you to walk downtown and what else you
could be doing in that time. If you feel that your time is worth $100 than you make the trip downtown. If you feel your time is not worth a $100 then
you do not make the trip. However if you decide to make the trip then you should make that same trip to save $100 even if you are buying a $3,000
painting. It is important to ignore proportions and focus on absolute dollar amounts.
As long as the marginal benefit of an activity exceeds the marginal cost, people are better off doing more of it. But as soon as the marginal cost
exceeds the marginal benefit, they suddenly become better off doing less of that specific activity. This can be used when deciding how many
employees a company should have. To produce the profit–maximizing level of output and hire the optimal number of workers, and other resources,
producers must compare the marginal benefits and marginal costs of producing a little more with the marginal benefits and marginal costs of
producing a little less. You can decide how many workers to hire for a profit–maximizing car company by
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Macroeconomics Essay
"Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national economy as a whole.
Macroeconomists seek to understand the determinants of aggregate trends in an economy with particular focus on national income, unemployment,
inflation, investment, and international trade" (Wikipedia, 2007). Government tends to use a combination of both monetary and fiscal options when
setting policies that deal with the Macroeconomic.
According to McConnell & Brue (2004), governments make adjustments through policy changes which they...show more content...
dollars into gold at $35 per ounce, has made the U.S. and other countries' monies into fiat money–money that national monetary authorities have the
power to issue without legal constraints.
Money is used in all economic operations; money has a powerful effect every economic activity. The increase in supply of money put more money in
the hands of the consumers and increased spending. When the money supply continues to expand and the prices begin to increase, particularly if the
output growth reach to the capacity limits as the public begin to expect the inflation, lenders insist on higher interest rates to offset and expected
decline in purchasing power over the life of their loans. Contradictory results happen when the supply of money falls, or when the rate of growth cries
off. The U.S. money supply comprises currency–dollar bills and coins issued by the Federal Reserve System and the Treasury–and various kinds of
deposits held by the public at commercial banks and other depository institutions such as savings and loans and credit unions. On June 30, 1990, the
money supply, measured as the sum of currency and checking account deposits, totaled $809 billion. Including some types of savings deposits, the
money supply totaled $3,272 billion. And even broader measure totaled $4,066 billion
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Personal Reflection Of Microeconomics
I have gained much respect for Economics as a field of study during this course. Being a political science major, I can honestly say that there isn't all
that much science in many of the topics. Conversation in political science can be argumentative and normative without concrete reason or evidence.
Economics, on the other hand, is intuitive and backed by research. More refreshingly, economics simply puts its research out for the world to see, and
sure individual economists may voice their opinions about public policy, but as a field, it is based mainly on positive statements; it tells it like it is
without venturing into how it should be. Economists do have a rough job in a way, they can't simply do research by conducting regular experiments
like altering the nation's monetary supply or increasing the minimum wage to study the effects on unemployment. It is impressive that they find a way
to use existing data to draw their conclusions. They really make the most out of what they are given. Additionally, it is nice that assumptions about
complex economic topics are made so even students in basic principles courses can understand the concepts in simple economic models.
I think that what we learned on market economics is the correct way of thinking about human interaction and the functioning of markets.
Microeconomics offered an interesting, and potentially more useful, perspective on the market because it essentially told us how our individual
decisions affect the market.
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Advantages And Disadvantages Of Microeconomics
Introduction
Microeconomics is the studies of the economic behavior of individual units of an economy (such as a person, household, firm, or industry).
Microeconomics is primarily concerned with factors that affect individual choices, the effect of changes in these factors on the individual decision
makers, how their choices are coordinated by markets, and how prices and demand are determined in individual markets.
Hence, I would first go through a description of perfect competition and monopoly. In addition, how the two different market structures differ from one
another.
Perfect Competition
Perfect competition is a market structure where many firms offer an identical product. Therefore, there are freedom of entry and exit. In addition, with
...show more content...
A monopoly firm is normally owned by a person, a few partners or a joint company. In a monopoly market, there are large numbers of buyers although
the seller is one. Therefore, no buyer's reaction can influence the price.
No close substitute
In a monopoly market, a single company produces a product which have no close substitute and the monopoly market will be able to mark up their
price. Therefore, buyers would have no say against the price. Monopoly can only exist when there is no competition.
Strong barriers to the entry into the industry exist
In a monopoly market, there is strong barrier on the entry of new firms. The monopoly market has absolute control over the production and sale of their
product. Economic barriers are normally imposed to stop new entrant of firms.
http://www.economicshelp.org/microessays/markets/monopoly/
In general, a short and long run diagram of monopoly is the same. Profit maximization occurs where MR=MC. Therefore, the equilibrium is at Qm, Pm.
Problems of Monopoly
Higher Price
Firms with monopoly power can set higher prices than in a competitive
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1. Neo–classical economics and ecological economics: their strengths or/and their weaknesses.
Neoclassical economics was found in the 19th century. This concept discusses the idea of maximizing utility to the fullest. Consumer's main concern is
to maximize their own personal satisfaction under the idea of Neoclassical Economics. This idea is protected by the relationship and decisions between
supply and demand. Consumers make decisions based on their own personal evaluations on informed information to increase their utility, profit and or
satisfaction. Consumers tend to act rationally when making these economic decisions, which creates different values based on perception of the
product. This concludes that the processes within neoclassical economics is perceived to be an analytical approach that all humans base their decision
making on what drives them to pursue individual pleasure or happiness.
Neoclassical economics also entails the reductionist theory. The reductionist theory means that one phenomena can be described within another
phenomena. When analyzing the reductionist theory, it's perceived to be a combination of systems. Each system impact each other in certain ways and
one thing can't be created without another. For example, being wealthy is a result of decision that individuals by working hard and frugality and those
who become poor do it by being lazy and not caring. These relationships between each factor creates production.
Neoclassical economics has its disadvantages and advantages. I believe that a strength is that it's a unified system that analyzes human rational and
natural activity and the phenomena because of human decisions. The concept of Neoclassical Economics also let to further research and studies of
humans and their relationships. Disadvantages of Neoclassical Economics include the economy not being concerned with the growth and development
of the environment. Neoclassical economics also perceives that consumers are simple minded in the fact that they only believe that supply can only
affect demand and that humans are perfect when controlling their own maximum utility.
Ecological Economics creates a more integrated picture of how humans have affected their environment.
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Introduction In this text, I concern myself with the contents of two articles based on recent microeconomics issues. During the last two months,
the price of gas in the U.S. has been on an upward trend. Taking into consideration recent happenings on the international scene, this trend could
have been triggered by many different factors. The articles I make use of in this case discuss the rising oil and gas prices. Discussion While the
first article I concern myself with predicts an increase in gas prices, the second article confirms an increase in the price of oil. From the onset, the
first article, titled Increased Gas Prices? Don't Blame Unrest in Egypt, points out to readers that they could soon find themselves digging deeper
into their pockets for a gallon of gas. However, even though it acknowledges that the unrest in Egypt could be to blame for the increase in gas price,
it warns against apportioning all the blame to the said unrest. The second article, titled Market Watch: Oil Prices Rise on US Economic Outlook,
confirms an increase in the price of oil most particularly in the London and New York markets. According to Domm (2013), the author of the first
article, apart from the unrest in Egypt, several other factors such as a plunge in the inventories of domestic crude oil could drive up demand and in the
end trigger an increase in the price of gas. In the opinion of the author, although the problems facing Egypt (and Libya) have affected supply
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Analysis of a News Article on Economics Essay
Introduction The study of economics is important to everyone. Financial decisions affect everyone in their day–to–day routines. Economics is the
study of how society manages its scarce resources (Mankiw, 2012). Macroeconomics is the study of economy wide phenomena, including inflation,
unemployment, Gross Domestic Product, and economic growth (Mankiw, 2012). Macroeconomics is important because, it is how all of us relate into
markets and economies. Many news articles today are centered on the economy and current events. One of these articles lends itself to many economic
principles and ideas. Even though there are many important topics not covered in the article, the article titled, "You Are What You Owe" in Time,
encompassed many...show more content...
Many important economic principles are also discussed in the article. Many of these economic Principles will be examined in this paper.
General Economic Principles In the Article, "You Are What You Owe," the first general economic Principle that was discussed in the article was the
idea of markets. Markets are described as a group of buyers and sellers of a particular good or service in the text (Mankiw, 2012). The United States
debt–ceiling crisis would have potentially wreaked havoc on many American markets. America would have paid a higher price to borrow, and that
cost would have been passed on to the average American. This would have led to instability many of the United States' markets. Many of today's
markets in the United States rely on borrowing money. If the Federal government had to pay higher to borrow money, this would cause its citizens to
pay a higher price for money. For example, where some people were able to buy a one hundred thousand dollar home, at a higher rate of borrowing
money they may not be able to afford the same home. This would affect the housing market significantly, since American's cannot afford to borrow the
money for a home anymore. In the hundred thousand mark here in Denver at least, many of the buyers are first time homebuyers. According to the
National Association of Realtors or NAR, first time homebuyers accounted for forty–seven percent of all home sales in America in 2009
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Are monetary disturbances and fiscal deficits inflationary? Empirical evidence from Malaysia
Associate Professor Dr Tan Juat Hong College of Graduate Studies, Universiti Tenaga Nasional, Malaysia
ABSTRACT: The study uses the VAR model to investigate the responses of domestic inflation to monetary and fiscal policies, with output as the scale
variable. The results show that domestic inflation responds positively to monetary policy shocks but not to fiscal deficits. If one assumes the velocity of
money as constant, then it underscores that inflation is a monetary phenomenon and excessive money supply spawns inflation. Thus, monetary policy
constitutes a more pertinent macroeconomic instrument to control spiralling inflation.
1....show more content...
In 1981 the budget–deficit stood at 15.6% of nominal GDP; while in 1982, it hit its peak at 16.6% of GDP. Nevertheless, the Malaysian government
managed to balance its fiscal budget from year 1993 till 1997. This period saw a budget–surplus policy corresponding to a local bullish market with
high commodity prices in the early 1990s. A budget surplus of 2.4% of nominal GDP was attained in 1997. However, the contagion effect of the 1997
/98 financial crisis from neighbouring Thailand exerted a negative impact on the Malaysian economy. Malaysia succumbed to the financial crisis in
1998 with declining real output and increasing unemployment, much to the chagrin of the government. Malaysia's fiscal policy after the 1998 financial
crisis has been a budget–deficit strategy to boost output growth as well as to reduce unemployment. In 2009, the government budget deficit stood at
7% of nominal GDP (see Figure 2). Figure 3 depicts the percentage annual change of broad money supply (M2) for the period 1970 till 2009.
Fundamentally, Bank Negara Malaysia, the Malaysian monetary authority, adopted a discretionary monetary policy to stabilise the country's financial
sector and macroeconomic issues. In his study, Tan (2006) finds that monetary policy tends to respond more vigorously to aggregate demand shocks as
compared to aggregate supply shocks. He concludes that monetary policy's positive response to aggregate demand shocks is countercyclical,
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Reflection Paper On Population Growth
As I reflect upon the topics that have been discussed in this course thus far, I am genuinely impressed by the growth and evolution of my knowledge
and perspective regarding human population growth. From the start, I felt that global population growth is a major issue because it perpetuates existing
issues of malnutrition, water scarcity, disease, and social unrest, but I was truly only concerned in a broad universal sense. After having had the
opportunity to explore issues of agriculture, resource distribution, and population control as an active participant in this course, I feel much more
personally implicated in the issue than I did initially and feel that it should be a topic of highest priority worldwide. Our global agricultural situation
is much more dire than I had previously understood. Our excessive tillage of the land and economic investment in the agricultural industry is
literally exhausting the soil of its nutrients thus reducing the amount of arable land available for us to grow food to a mere 11% of Earth's total
landmass. Perhaps even more alarming is the fact that as the population continues to grow and the demand for food increases in response, the land
available for food production shrinks simultaneously, and soon it may become impossible to properly sustain our species because we will have no
resources left to exploit. Dr. Wilson expressed the world's treatment of the issue of food supply best when he suggested, "This is an abstract concept
until you go
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Abstract
Economics is an enormous field. The term economics is the broader term, however within this, there are additional fields such as microeconomics and
macroeconomics. The difference between microeconomics and macroeconomics is analogous to the human body and the individual cell that makes up
the human body. Macroeconomics is involved with the wide lens aspect of society. In other words, macroeconomics focuses on the broader large scale
economy of a society. Macroeconomics focuses on larger economic issues such as national employment rates, gross domestic product, interest rates, as
well as currency exchange rates just to name a few examples. On the other hand, microeconomics focuses more on the narrower lens of an economy.
This approach focuses on the individual businesses and customers as far as economic decisions are concerned. Specifically, microeconomics studies the
decision making process of the consumer. Microeconomics ask the question, how do consumers spend their money? According to Investopedia (find
source), microeconomics is at the heart of consumer purchasing.
The Use of Utility in Microeconomics
The Impact of Key Economic Principles
Economics is a fascinating topic within our world. Pause and take a minute to look around. Assuming you are not on a deserted island, everything you
see is influenced by economics. The clothes you wear, the food you eat, the electricity you are using, are all influenced by economics. Our world is so
greatly influenced by
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ECON1016GroupWorkAssessment
PROBLEM
SETNO4(Chapter30&33)
Student #1 Name and ID: Gwee Yi Xuan S3506518, 10148285
Student #2 Name and ID: Cheah Wei Yun, S3509385, 10148653
Student #3 Name and ID: Yong Chang Wei Stanley, S3532641, 10154582
Question 1
Suppose that a country's inflation rate increase sharply. Explain the following situations. (1 mark for each)
a) What happens to the inflation tax on the holders of money?
As inflation rate increases sharply, the price level also increases sharply, causing the real value of money that the holders have to decrease.
b) Why is wealth that is held in savings account not subject to a change in the inflation tax?
Due to the Fisher effect, the bank has already taken...show more content...
d) A casual worker who has no labour contract
This unexpectedly low inflation will help the worker, as it meant that they are cheaper to hire. Thus, the company will continue to hire them, regardless
of a labour contract, keeping them employed.
e) A private school that has invested some of its endowment in Government
Bonds.
This unexpectedly low inflation will hurt the private school, as the nominal interest rate is lower than expected. This meant that they will earn less
revenue from the government bonds. Nominal interest rate (↓) = Real interest rate + Inflation rate (↓)
2
Question 3
a) 'In the long run, "money is neutral."
(ii) The long‐run aggregate supply curve is vertical
Changes in the supply of money affect nominal variables, but not real variables.
b) Firms and workers often reach agreements under which nominal wages are
"sticky" for periods as long as one or two years.
(iii) The short‐run aggregate supply curve slopes up
An increase in the inflation rate, increases the quantity of goods and services supplied in the short run. The wages do not adjust immediately to the
inflation rate, due to the agreements that fixed the wages for up to one or two years.
3
c) When the price level rises, the real value of savers' monetary wealth declines.
(i) The aggregate demand curve slopes down
The nominal value of money is fixed, but the real value is not. When inflation rises,
these
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CHAPTER ONE 1.INTRODUCTION 1.1Background of the Study Governments make use of different macroeconomic policy instruments such as
fiscal and monetary policies to stabilize the macro–economy and brig about growth to their respective countries. Yet there are debates on the efficiency
of each of these instruments. Some economists argue that fiscal and monetary policies are ineffective in all countries while the other group argue that
they are important policy tools, though their effectiveness depends on conditions in the economy. Fiscal policy is one of the commonly used
instruments for achieving the goals of growth and stability in the economy through enforcing monitoring mechanisms. The components of fiscal policy
include: government expenditure, tax, and public debt (Permechand 1983). The contradicting arguments about effectiveness of fiscal policy
amendments or government involvement still continue in these sections too. Public expenditure refers to the expenditure incurred by the government
for the maintenance of various public good and to promote the welfare of the society as a whole. It is the main instrument used by governments
especially in developing countries to promote economic growth which is an essential component for sustainable development (MOFED 2010).
However, composition of government expenditure has been attracting the attention of economists due to its effects on the level of growth (Sharma B.
2012). Economic growth is expected to bring about a better
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A Reflection on the Study of Economics
Part 1
Some of the most compelling topics that I learned in this topic only came into focus at the end of the course. Economics is a very large and complex
study and reflecting on this subject, piece by piece, requires some patience and ability to put the pieces together. The relationships between simple
choices, such as supply and demand, drives all economic and commercial exchange but only through the lens of economic models that attempt to layout
this system by combing mathematical principles and psycho–social evaluation. All in all, this was very interesting introduction to some of the complex
drivers that propel society.
Discussions are always useful because we are allowed an opportunity to weigh and evaluate our own personal thoughts with those of others. This
comparison helps gauge where I stand on many political and social issues that derive from economic theories and philosophies. Knowing where I
stand amongst my peers is a helpful measurement to contrast and qualify my own thoughts. For example, when the topic of monetary policy came up,
I was very shocked to find out the importance of currency and how it is used in global markets.
What was more revealing is the United States' relationship to the Federal Reserve and that organization's power of the monetary policy set in this
country. It is very difficult to fathom how the entire economic systems sometimes works without a major disaster every day. The ability of the
economic markets in the world to bring
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Essay about U.S. Economy
The United States economy is currently not looking very good. Over the past couple of months the economy has taken a turn for the worst and we
could be headed into a recession in the coming months or years. The biggest problems are in the real estate and mortgage markets. In 1999, housing
prices rose at huge rates and lenders began offering riskier mortgages, which caused homeowners to keep piling up huge debts. People were taking out
loans and balloon mortgage payments that they really could not afford. The problem began in late 2007, when housing prices began to fall and the
system fell apart causing huge numbers of defaults on home loans and foreclosures. Currently, 5.6% of mortgages are delinquent, the highest rate in 21
years, and...show more content...
The housing crisis that I mentioned earlier and resulting backlash through the entire economy has been building for awhile now but it has just came
into the forefront in the past couple of weeks. We really haven't faced a downturn like this since the Depression. Last Tuesday, January 22, the Dow
Jones industrial average fell almost 600 points and was already down 9% in 2008 (Gross 1). Immediately the Federal Reserve took action and cut the
interest rates three–quarters of a percentage point, the biggest cut in 24 years. Today, not even a week later, the Fed again cut interest rates, this time
by a half–point (Aversa 1). This move is an effort to keep the economy out of a recession by getting money back into the banks and encouraging
them to keep lending credit to turn the economy upward. Whether or not it will work remains to be seen in the coming months. The government
also announced another move to a couple weeks ago to help get the economy going again and avoid or slow down a recession. President Bush and
the House are currently developing a $145 billion stimulus plan that would give tax relief to citizens by sending them individual checks for $300 and
up. The plan would put over $100 billion into the hands of consumers and the government hopes that money would be spent and put back into the
economy (Wolf 1). While all these things are good news for the struggling economy, most economic experts believe that a recession of some kind may
be impossible to avoid
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Gross Domestic Product (GDP) of a Nation Essay
GDP
Gross domestic product (GDP) of a nation is comprised of four primary components. These components; consumption, investment, government
spending and net exports are the measure of the monetary value of all the finished goods and services produced within a country's borders in over a
given period of time. This can be broken down in any time frame but is normally used quarterly and annually. The GDP can be calculated as; GDP
(Y) = consumption (C) + investment (I) + government spending (G) + net exports (NX) or Y=C+I+G+NX. The key word here is finished goods and not
all goods.
Consumption
Household consumption, one of the four components of calculating the GDP of a nation has a broad range of items included in it. With the exception of
...show more content...
It is not until the items are sold that they become converted to consumption spending and will then be considered negative inventory investment for
Amazon. Mankiw (2012) stated that the GDP measures expenditures on goods and services where the word investment means the purchase of goods
used to produce other goods (p.498).
It is very important that companies invest in the future for its business. The economy could be doing better if some companies were not so profit
oriented and more growth conscious. Amazon has been investing a great deal into the future of its business. For the shareholders of Amazon this
action should have an affect the value of the shares. Since Amazon is investing so much back into its growth it has not made any real money and the
shares do not earn much of any dividends. For most stocks this would be seen as a negative for its shareholders. For Amazon though, its stock
continues to increase in value even without showing a profit. This may be very good for the future of its shareholders once Amazon gains the market
share it is looking for and can then return great profits. Amazon has been building market share by continually building more fulfillment buildings in
more cities. For now it has foregone maximizing profits which could be staggeringly high and used this money to help grow
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Fiscal policy, as we know it today, is meant to mitigate unemployment and stabilize the economy through aggregate demand. Despite dismal
unemployment numbers, politicians and policy–makers continue to use and be optimistic about the effectiveness of fiscal policy in this regard. Policy
as we have seen over the past five years has had dismal effect on the unemployment numbers we are seeing today. It seems we need a policy that will
tackle lagging aggregate demand as well as the employment problems. A direct–job creation effort will work to create the differences in aggregate
demand and effective demand creating equilibrium and filling the void that the current Keynesian fiscal policy leaves. Keynesian Ideas The origins of
many ideas...show more content...
Keynes idea is that there is a spending multiplier model that shows that $1 introduced into the economy flows and circulates into smaller and
smaller pieces; ultimately yielding a final aggregate impact number that is much larger than the original amount spent. This model can be applied to
each variable of aggregate demand in order to increase the GDP. (GDP=AD=C+I+G+X) In this model if government spending increases by $1, half
of that dollar will circulate in the market, and the other half of that 50 cents or 25 cents with flow into the economy, in a continual process. That first
50 cents in additional consumption is the Marginal Propensity to Consume factor (MPC) . With that MPC of 50 cents, the multiplier of any new
round of marginal spending, based on Keynes model would be, $1/ (1–mpc) or $1–.5) =$2 of increased spending. Therefore, $2 is created by each
dollar introduced into the economy. Essentially if $400billion put into the economy through government spending brings back a rise in income of $600
billion, then the multiple would be 1.5 (Keynes, 1936, 151–174). With greater aggregated demand there is more demand for goods and services (GDP)
at any given price level. So, with greater demand for goods and services, there is more need for firms to produce them, and therefore unemployment
would fall. A number of moves can be taken in the event of a recession to aid in recovery, the typical fiscal
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This paper will examine three theories regarding economic performance. The Keynesian School of thought, the Monetarist School and the Austrian
Business Cycle has different views on how the economy can improve during recessions or other economic downturns. Each is relevant to economic
issues during The Great Depression in the 1930's to the Great Recession in late 2000's. This paper will discuss the history behind each theory, the
specific views on key points in each school of theory and why the founders felt strongly about utilizing those particular concepts. Views on market
response and the role of government regarding each philosophy will be considered as well.
The Keynesian School
During the midst of The Great Depression, John Maynard...show more content...
"The assumption of sticky prices is an essential underpinning of the IS–LM model... as the theory of short–run fluctuations" (Ball & Mankiw, 1994,
para 2). When demand decreases because of a downturn in the stock market, for example, many businesses will either produce less of the product or
stop selling it altogether. This in turn creates an imbalance between the price to make the product and the price to maintain employees who help make
the product.
Keynes' economic theory focused on short–run alternatives. Aggregate demand or total spending was his main focus in regard to his general theory.
Price level remains unchanged and real output grows rapidly creating an increase in aggregate demand; other things equal. Further declaring influence
in aggregate demand, through economic intervention policies by the government, is the driving force for economic stimulation. In the 1930's during
the peak of The Great Depression the economy saw a decrease in demand because of rises in unemployment, GDP, and an alarming spike ininflation.
Keynes purpose in focusing on the behavior of the economy through household and businesses versus the forces of free markets and individual and
company behavior; was to prove that inducing aggregate demand could stabilize the economy from such horrid times. Keynes is known for stating
"...in the long run, we are all dead" (Blinder, 2014).
A large part of Keynes general theory lies on
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What is Economics? Essay
Many people think that economics is about money. Well, to some extent this is true. Economics has a lot to do with money: with how much money
people are paid; how much they spend: what it costs to buy various items; how much money firms earn; how much money there is in total in the
economy. But despite the large number of areas in which our lives are concerned with money,economics is more than just the study of money.
It is concerned with:
В·The production of goods and services: how much the economy produces; what particular combination of goods and services; how much each firm
produces; what techniques of production they use; how many people they employ.
В·The consumption of goods and services: how much the population as a...show more content...
There are three types of resources:
В·Human resources: labour The labour force is limited both in number and in skills.
В·Natural resources: land and raw materials The world's land area is limited, as are its raw materials.
В·Manufactures resources: capital
All inputs into production that have themselves been produced: e.g. factories, machines and tools.
One must bear in mind that our wants are virtually unlimited, while the resources available to satisfy these wants are limited. In other words when
society demands more of a product than can actually be produced to fulfil those wants we have a problem of scarcity. An example of this would be the
OPEC oil price shocks between 1973 and 1980. Yes, it is true that the price of oil rose and some individuals used substitutes but the economies of oil
importing countries like Germany and Japan fell because OPEC now had more buying power since they had the control over a scarce resource. We
can therefore think of oil as having become scarcer in economic terms when its price rose.
Earlier I stated that economics is concerned with consumption and production. We can look at it in the terms of demand and supply. It is simply the
quantity of a good buyers wish to purchase at each conceivable price. Three factors determine demand:
В·Desire
В·Willingness to pay
В·Ability to pay
Whilst supply is the quantity of good sellers wish to sell at each conceivable price. Supply is
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Reflection on Microeconomics Class
Reflection on Microeconomics Class Microeconomics is the economic influences that impact at the micro, or firm, rather than macro level. The study
of this subject is one that is highly valuable for any studying business with the provision of knowledge that will increase understanding of different
influences and support the decision making processes. With the knowledge gained, along with the skills in applying that knowledge developed through
class work and exercises for the different modules, there has also been the development of increased confidence, both personal and in the theories, in
using the relevant concepts and tools in a practical setting. Some of the most important knowledge gained for practical purposes concerned the concept
and application of supply and demand. Anecdotal evidence of supply and demand can be seen all around us; including the way that gasoline prices
increase and decrease as a result of the way oil prices, which resulted in a basic understanding of the underlying concept. Other areas where this can
be seen include examples such as the stock market and even web sites such as eBay with the auction of goods. However, the ability to understand the
way this operates not only helps to explain the observed outcomes, the ability to use this to help predict potential outcomes for different scenarios is
highly useful. The concepts of elasticity and cross elasticity with different influences, such as disposable income and competing products are all
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The Seven Core Principles Of Economics

  • 1. The Seven Core Principles of Economics Economics is the social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems. All economists agree on one thing, the economy is large and it is unpredictable. However, throughout the years economists have developed some simple but widely applicable principles that are useful when trying to understand decisions that are made by everyday people to the workings of highly complex markets. There are Seven Core Principles of Economics. These principles are: Scarcity Principle, Cost–Benefit Principle, Principle of Unequal Costs, Principle of Comparative Advantage, Principle of Increasing Opportunity Cost, Equilibrium Principle, and...show more content... The concept of cost–benefit sounds simple enough but to apply it you have to decide how to measure relative costs and benefits which can become tricky. Different people may feel differently about the value of different things. A classic example is whether a not you should walk downtown to save $100 on a $500 dollar guitar. The benefit here is saving $100. The cost being the time it takes for you to walk downtown and what else you could be doing in that time. If you feel that your time is worth $100 than you make the trip downtown. If you feel your time is not worth a $100 then you do not make the trip. However if you decide to make the trip then you should make that same trip to save $100 even if you are buying a $3,000 painting. It is important to ignore proportions and focus on absolute dollar amounts. As long as the marginal benefit of an activity exceeds the marginal cost, people are better off doing more of it. But as soon as the marginal cost exceeds the marginal benefit, they suddenly become better off doing less of that specific activity. This can be used when deciding how many employees a company should have. To produce the profit–maximizing level of output and hire the optimal number of workers, and other resources, producers must compare the marginal benefits and marginal costs of producing a little more with the marginal benefits and marginal costs of producing a little less. You can decide how many workers to hire for a profit–maximizing car company by Get more content on HelpWriting.net
  • 2. Macroeconomics Essay "Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national economy as a whole. Macroeconomists seek to understand the determinants of aggregate trends in an economy with particular focus on national income, unemployment, inflation, investment, and international trade" (Wikipedia, 2007). Government tends to use a combination of both monetary and fiscal options when setting policies that deal with the Macroeconomic. According to McConnell & Brue (2004), governments make adjustments through policy changes which they...show more content... dollars into gold at $35 per ounce, has made the U.S. and other countries' monies into fiat money–money that national monetary authorities have the power to issue without legal constraints. Money is used in all economic operations; money has a powerful effect every economic activity. The increase in supply of money put more money in the hands of the consumers and increased spending. When the money supply continues to expand and the prices begin to increase, particularly if the output growth reach to the capacity limits as the public begin to expect the inflation, lenders insist on higher interest rates to offset and expected decline in purchasing power over the life of their loans. Contradictory results happen when the supply of money falls, or when the rate of growth cries off. The U.S. money supply comprises currency–dollar bills and coins issued by the Federal Reserve System and the Treasury–and various kinds of deposits held by the public at commercial banks and other depository institutions such as savings and loans and credit unions. On June 30, 1990, the money supply, measured as the sum of currency and checking account deposits, totaled $809 billion. Including some types of savings deposits, the money supply totaled $3,272 billion. And even broader measure totaled $4,066 billion Get more content on HelpWriting.net
  • 3. Personal Reflection Of Microeconomics I have gained much respect for Economics as a field of study during this course. Being a political science major, I can honestly say that there isn't all that much science in many of the topics. Conversation in political science can be argumentative and normative without concrete reason or evidence. Economics, on the other hand, is intuitive and backed by research. More refreshingly, economics simply puts its research out for the world to see, and sure individual economists may voice their opinions about public policy, but as a field, it is based mainly on positive statements; it tells it like it is without venturing into how it should be. Economists do have a rough job in a way, they can't simply do research by conducting regular experiments like altering the nation's monetary supply or increasing the minimum wage to study the effects on unemployment. It is impressive that they find a way to use existing data to draw their conclusions. They really make the most out of what they are given. Additionally, it is nice that assumptions about complex economic topics are made so even students in basic principles courses can understand the concepts in simple economic models. I think that what we learned on market economics is the correct way of thinking about human interaction and the functioning of markets. Microeconomics offered an interesting, and potentially more useful, perspective on the market because it essentially told us how our individual decisions affect the market. Get more content on HelpWriting.net
  • 4. Advantages And Disadvantages Of Microeconomics Introduction Microeconomics is the studies of the economic behavior of individual units of an economy (such as a person, household, firm, or industry). Microeconomics is primarily concerned with factors that affect individual choices, the effect of changes in these factors on the individual decision makers, how their choices are coordinated by markets, and how prices and demand are determined in individual markets. Hence, I would first go through a description of perfect competition and monopoly. In addition, how the two different market structures differ from one another. Perfect Competition Perfect competition is a market structure where many firms offer an identical product. Therefore, there are freedom of entry and exit. In addition, with ...show more content... A monopoly firm is normally owned by a person, a few partners or a joint company. In a monopoly market, there are large numbers of buyers although the seller is one. Therefore, no buyer's reaction can influence the price. No close substitute In a monopoly market, a single company produces a product which have no close substitute and the monopoly market will be able to mark up their price. Therefore, buyers would have no say against the price. Monopoly can only exist when there is no competition. Strong barriers to the entry into the industry exist In a monopoly market, there is strong barrier on the entry of new firms. The monopoly market has absolute control over the production and sale of their product. Economic barriers are normally imposed to stop new entrant of firms. http://www.economicshelp.org/microessays/markets/monopoly/ In general, a short and long run diagram of monopoly is the same. Profit maximization occurs where MR=MC. Therefore, the equilibrium is at Qm, Pm. Problems of Monopoly
  • 5. Higher Price Firms with monopoly power can set higher prices than in a competitive Get more content on HelpWriting.net
  • 6. 1. Neo–classical economics and ecological economics: their strengths or/and their weaknesses. Neoclassical economics was found in the 19th century. This concept discusses the idea of maximizing utility to the fullest. Consumer's main concern is to maximize their own personal satisfaction under the idea of Neoclassical Economics. This idea is protected by the relationship and decisions between supply and demand. Consumers make decisions based on their own personal evaluations on informed information to increase their utility, profit and or satisfaction. Consumers tend to act rationally when making these economic decisions, which creates different values based on perception of the product. This concludes that the processes within neoclassical economics is perceived to be an analytical approach that all humans base their decision making on what drives them to pursue individual pleasure or happiness. Neoclassical economics also entails the reductionist theory. The reductionist theory means that one phenomena can be described within another phenomena. When analyzing the reductionist theory, it's perceived to be a combination of systems. Each system impact each other in certain ways and one thing can't be created without another. For example, being wealthy is a result of decision that individuals by working hard and frugality and those who become poor do it by being lazy and not caring. These relationships between each factor creates production. Neoclassical economics has its disadvantages and advantages. I believe that a strength is that it's a unified system that analyzes human rational and natural activity and the phenomena because of human decisions. The concept of Neoclassical Economics also let to further research and studies of humans and their relationships. Disadvantages of Neoclassical Economics include the economy not being concerned with the growth and development of the environment. Neoclassical economics also perceives that consumers are simple minded in the fact that they only believe that supply can only affect demand and that humans are perfect when controlling their own maximum utility. Ecological Economics creates a more integrated picture of how humans have affected their environment. Get more content on HelpWriting.net
  • 7. Introduction In this text, I concern myself with the contents of two articles based on recent microeconomics issues. During the last two months, the price of gas in the U.S. has been on an upward trend. Taking into consideration recent happenings on the international scene, this trend could have been triggered by many different factors. The articles I make use of in this case discuss the rising oil and gas prices. Discussion While the first article I concern myself with predicts an increase in gas prices, the second article confirms an increase in the price of oil. From the onset, the first article, titled Increased Gas Prices? Don't Blame Unrest in Egypt, points out to readers that they could soon find themselves digging deeper into their pockets for a gallon of gas. However, even though it acknowledges that the unrest in Egypt could be to blame for the increase in gas price, it warns against apportioning all the blame to the said unrest. The second article, titled Market Watch: Oil Prices Rise on US Economic Outlook, confirms an increase in the price of oil most particularly in the London and New York markets. According to Domm (2013), the author of the first article, apart from the unrest in Egypt, several other factors such as a plunge in the inventories of domestic crude oil could drive up demand and in the end trigger an increase in the price of gas. In the opinion of the author, although the problems facing Egypt (and Libya) have affected supply Get more content on HelpWriting.net
  • 8. Analysis of a News Article on Economics Essay Introduction The study of economics is important to everyone. Financial decisions affect everyone in their day–to–day routines. Economics is the study of how society manages its scarce resources (Mankiw, 2012). Macroeconomics is the study of economy wide phenomena, including inflation, unemployment, Gross Domestic Product, and economic growth (Mankiw, 2012). Macroeconomics is important because, it is how all of us relate into markets and economies. Many news articles today are centered on the economy and current events. One of these articles lends itself to many economic principles and ideas. Even though there are many important topics not covered in the article, the article titled, "You Are What You Owe" in Time, encompassed many...show more content... Many important economic principles are also discussed in the article. Many of these economic Principles will be examined in this paper. General Economic Principles In the Article, "You Are What You Owe," the first general economic Principle that was discussed in the article was the idea of markets. Markets are described as a group of buyers and sellers of a particular good or service in the text (Mankiw, 2012). The United States debt–ceiling crisis would have potentially wreaked havoc on many American markets. America would have paid a higher price to borrow, and that cost would have been passed on to the average American. This would have led to instability many of the United States' markets. Many of today's markets in the United States rely on borrowing money. If the Federal government had to pay higher to borrow money, this would cause its citizens to pay a higher price for money. For example, where some people were able to buy a one hundred thousand dollar home, at a higher rate of borrowing money they may not be able to afford the same home. This would affect the housing market significantly, since American's cannot afford to borrow the money for a home anymore. In the hundred thousand mark here in Denver at least, many of the buyers are first time homebuyers. According to the National Association of Realtors or NAR, first time homebuyers accounted for forty–seven percent of all home sales in America in 2009 Get more content on HelpWriting.net
  • 9. Are monetary disturbances and fiscal deficits inflationary? Empirical evidence from Malaysia Associate Professor Dr Tan Juat Hong College of Graduate Studies, Universiti Tenaga Nasional, Malaysia ABSTRACT: The study uses the VAR model to investigate the responses of domestic inflation to monetary and fiscal policies, with output as the scale variable. The results show that domestic inflation responds positively to monetary policy shocks but not to fiscal deficits. If one assumes the velocity of money as constant, then it underscores that inflation is a monetary phenomenon and excessive money supply spawns inflation. Thus, monetary policy constitutes a more pertinent macroeconomic instrument to control spiralling inflation. 1....show more content... In 1981 the budget–deficit stood at 15.6% of nominal GDP; while in 1982, it hit its peak at 16.6% of GDP. Nevertheless, the Malaysian government managed to balance its fiscal budget from year 1993 till 1997. This period saw a budget–surplus policy corresponding to a local bullish market with high commodity prices in the early 1990s. A budget surplus of 2.4% of nominal GDP was attained in 1997. However, the contagion effect of the 1997 /98 financial crisis from neighbouring Thailand exerted a negative impact on the Malaysian economy. Malaysia succumbed to the financial crisis in 1998 with declining real output and increasing unemployment, much to the chagrin of the government. Malaysia's fiscal policy after the 1998 financial crisis has been a budget–deficit strategy to boost output growth as well as to reduce unemployment. In 2009, the government budget deficit stood at 7% of nominal GDP (see Figure 2). Figure 3 depicts the percentage annual change of broad money supply (M2) for the period 1970 till 2009. Fundamentally, Bank Negara Malaysia, the Malaysian monetary authority, adopted a discretionary monetary policy to stabilise the country's financial sector and macroeconomic issues. In his study, Tan (2006) finds that monetary policy tends to respond more vigorously to aggregate demand shocks as compared to aggregate supply shocks. He concludes that monetary policy's positive response to aggregate demand shocks is countercyclical, Get more content on HelpWriting.net
  • 10. Reflection Paper On Population Growth As I reflect upon the topics that have been discussed in this course thus far, I am genuinely impressed by the growth and evolution of my knowledge and perspective regarding human population growth. From the start, I felt that global population growth is a major issue because it perpetuates existing issues of malnutrition, water scarcity, disease, and social unrest, but I was truly only concerned in a broad universal sense. After having had the opportunity to explore issues of agriculture, resource distribution, and population control as an active participant in this course, I feel much more personally implicated in the issue than I did initially and feel that it should be a topic of highest priority worldwide. Our global agricultural situation is much more dire than I had previously understood. Our excessive tillage of the land and economic investment in the agricultural industry is literally exhausting the soil of its nutrients thus reducing the amount of arable land available for us to grow food to a mere 11% of Earth's total landmass. Perhaps even more alarming is the fact that as the population continues to grow and the demand for food increases in response, the land available for food production shrinks simultaneously, and soon it may become impossible to properly sustain our species because we will have no resources left to exploit. Dr. Wilson expressed the world's treatment of the issue of food supply best when he suggested, "This is an abstract concept until you go Get more content on HelpWriting.net
  • 11. Abstract Economics is an enormous field. The term economics is the broader term, however within this, there are additional fields such as microeconomics and macroeconomics. The difference between microeconomics and macroeconomics is analogous to the human body and the individual cell that makes up the human body. Macroeconomics is involved with the wide lens aspect of society. In other words, macroeconomics focuses on the broader large scale economy of a society. Macroeconomics focuses on larger economic issues such as national employment rates, gross domestic product, interest rates, as well as currency exchange rates just to name a few examples. On the other hand, microeconomics focuses more on the narrower lens of an economy. This approach focuses on the individual businesses and customers as far as economic decisions are concerned. Specifically, microeconomics studies the decision making process of the consumer. Microeconomics ask the question, how do consumers spend their money? According to Investopedia (find source), microeconomics is at the heart of consumer purchasing. The Use of Utility in Microeconomics The Impact of Key Economic Principles Economics is a fascinating topic within our world. Pause and take a minute to look around. Assuming you are not on a deserted island, everything you see is influenced by economics. The clothes you wear, the food you eat, the electricity you are using, are all influenced by economics. Our world is so greatly influenced by Get more content on HelpWriting.net
  • 12. ECON1016GroupWorkAssessment PROBLEM SETNO4(Chapter30&33) Student #1 Name and ID: Gwee Yi Xuan S3506518, 10148285 Student #2 Name and ID: Cheah Wei Yun, S3509385, 10148653 Student #3 Name and ID: Yong Chang Wei Stanley, S3532641, 10154582 Question 1 Suppose that a country's inflation rate increase sharply. Explain the following situations. (1 mark for each) a) What happens to the inflation tax on the holders of money? As inflation rate increases sharply, the price level also increases sharply, causing the real value of money that the holders have to decrease. b) Why is wealth that is held in savings account not subject to a change in the inflation tax? Due to the Fisher effect, the bank has already taken...show more content... d) A casual worker who has no labour contract This unexpectedly low inflation will help the worker, as it meant that they are cheaper to hire. Thus, the company will continue to hire them, regardless of a labour contract, keeping them employed. e) A private school that has invested some of its endowment in Government Bonds. This unexpectedly low inflation will hurt the private school, as the nominal interest rate is lower than expected. This meant that they will earn less revenue from the government bonds. Nominal interest rate (↓) = Real interest rate + Inflation rate (↓) 2 Question 3 a) 'In the long run, "money is neutral." (ii) The long‐run aggregate supply curve is vertical Changes in the supply of money affect nominal variables, but not real variables.
  • 13. b) Firms and workers often reach agreements under which nominal wages are "sticky" for periods as long as one or two years. (iii) The short‐run aggregate supply curve slopes up An increase in the inflation rate, increases the quantity of goods and services supplied in the short run. The wages do not adjust immediately to the inflation rate, due to the agreements that fixed the wages for up to one or two years. 3 c) When the price level rises, the real value of savers' monetary wealth declines. (i) The aggregate demand curve slopes down The nominal value of money is fixed, but the real value is not. When inflation rises, these Get more content on HelpWriting.net
  • 14. CHAPTER ONE 1.INTRODUCTION 1.1Background of the Study Governments make use of different macroeconomic policy instruments such as fiscal and monetary policies to stabilize the macro–economy and brig about growth to their respective countries. Yet there are debates on the efficiency of each of these instruments. Some economists argue that fiscal and monetary policies are ineffective in all countries while the other group argue that they are important policy tools, though their effectiveness depends on conditions in the economy. Fiscal policy is one of the commonly used instruments for achieving the goals of growth and stability in the economy through enforcing monitoring mechanisms. The components of fiscal policy include: government expenditure, tax, and public debt (Permechand 1983). The contradicting arguments about effectiveness of fiscal policy amendments or government involvement still continue in these sections too. Public expenditure refers to the expenditure incurred by the government for the maintenance of various public good and to promote the welfare of the society as a whole. It is the main instrument used by governments especially in developing countries to promote economic growth which is an essential component for sustainable development (MOFED 2010). However, composition of government expenditure has been attracting the attention of economists due to its effects on the level of growth (Sharma B. 2012). Economic growth is expected to bring about a better Get more content on HelpWriting.net
  • 15. A Reflection on the Study of Economics Part 1 Some of the most compelling topics that I learned in this topic only came into focus at the end of the course. Economics is a very large and complex study and reflecting on this subject, piece by piece, requires some patience and ability to put the pieces together. The relationships between simple choices, such as supply and demand, drives all economic and commercial exchange but only through the lens of economic models that attempt to layout this system by combing mathematical principles and psycho–social evaluation. All in all, this was very interesting introduction to some of the complex drivers that propel society. Discussions are always useful because we are allowed an opportunity to weigh and evaluate our own personal thoughts with those of others. This comparison helps gauge where I stand on many political and social issues that derive from economic theories and philosophies. Knowing where I stand amongst my peers is a helpful measurement to contrast and qualify my own thoughts. For example, when the topic of monetary policy came up, I was very shocked to find out the importance of currency and how it is used in global markets. What was more revealing is the United States' relationship to the Federal Reserve and that organization's power of the monetary policy set in this country. It is very difficult to fathom how the entire economic systems sometimes works without a major disaster every day. The ability of the economic markets in the world to bring Get more content on HelpWriting.net
  • 16. Essay about U.S. Economy The United States economy is currently not looking very good. Over the past couple of months the economy has taken a turn for the worst and we could be headed into a recession in the coming months or years. The biggest problems are in the real estate and mortgage markets. In 1999, housing prices rose at huge rates and lenders began offering riskier mortgages, which caused homeowners to keep piling up huge debts. People were taking out loans and balloon mortgage payments that they really could not afford. The problem began in late 2007, when housing prices began to fall and the system fell apart causing huge numbers of defaults on home loans and foreclosures. Currently, 5.6% of mortgages are delinquent, the highest rate in 21 years, and...show more content... The housing crisis that I mentioned earlier and resulting backlash through the entire economy has been building for awhile now but it has just came into the forefront in the past couple of weeks. We really haven't faced a downturn like this since the Depression. Last Tuesday, January 22, the Dow Jones industrial average fell almost 600 points and was already down 9% in 2008 (Gross 1). Immediately the Federal Reserve took action and cut the interest rates three–quarters of a percentage point, the biggest cut in 24 years. Today, not even a week later, the Fed again cut interest rates, this time by a half–point (Aversa 1). This move is an effort to keep the economy out of a recession by getting money back into the banks and encouraging them to keep lending credit to turn the economy upward. Whether or not it will work remains to be seen in the coming months. The government also announced another move to a couple weeks ago to help get the economy going again and avoid or slow down a recession. President Bush and the House are currently developing a $145 billion stimulus plan that would give tax relief to citizens by sending them individual checks for $300 and up. The plan would put over $100 billion into the hands of consumers and the government hopes that money would be spent and put back into the economy (Wolf 1). While all these things are good news for the struggling economy, most economic experts believe that a recession of some kind may be impossible to avoid Get more content on HelpWriting.net
  • 17. Gross Domestic Product (GDP) of a Nation Essay GDP Gross domestic product (GDP) of a nation is comprised of four primary components. These components; consumption, investment, government spending and net exports are the measure of the monetary value of all the finished goods and services produced within a country's borders in over a given period of time. This can be broken down in any time frame but is normally used quarterly and annually. The GDP can be calculated as; GDP (Y) = consumption (C) + investment (I) + government spending (G) + net exports (NX) or Y=C+I+G+NX. The key word here is finished goods and not all goods. Consumption Household consumption, one of the four components of calculating the GDP of a nation has a broad range of items included in it. With the exception of ...show more content... It is not until the items are sold that they become converted to consumption spending and will then be considered negative inventory investment for Amazon. Mankiw (2012) stated that the GDP measures expenditures on goods and services where the word investment means the purchase of goods used to produce other goods (p.498). It is very important that companies invest in the future for its business. The economy could be doing better if some companies were not so profit oriented and more growth conscious. Amazon has been investing a great deal into the future of its business. For the shareholders of Amazon this action should have an affect the value of the shares. Since Amazon is investing so much back into its growth it has not made any real money and the shares do not earn much of any dividends. For most stocks this would be seen as a negative for its shareholders. For Amazon though, its stock continues to increase in value even without showing a profit. This may be very good for the future of its shareholders once Amazon gains the market share it is looking for and can then return great profits. Amazon has been building market share by continually building more fulfillment buildings in more cities. For now it has foregone maximizing profits which could be staggeringly high and used this money to help grow Get more content on HelpWriting.net
  • 18. Fiscal policy, as we know it today, is meant to mitigate unemployment and stabilize the economy through aggregate demand. Despite dismal unemployment numbers, politicians and policy–makers continue to use and be optimistic about the effectiveness of fiscal policy in this regard. Policy as we have seen over the past five years has had dismal effect on the unemployment numbers we are seeing today. It seems we need a policy that will tackle lagging aggregate demand as well as the employment problems. A direct–job creation effort will work to create the differences in aggregate demand and effective demand creating equilibrium and filling the void that the current Keynesian fiscal policy leaves. Keynesian Ideas The origins of many ideas...show more content... Keynes idea is that there is a spending multiplier model that shows that $1 introduced into the economy flows and circulates into smaller and smaller pieces; ultimately yielding a final aggregate impact number that is much larger than the original amount spent. This model can be applied to each variable of aggregate demand in order to increase the GDP. (GDP=AD=C+I+G+X) In this model if government spending increases by $1, half of that dollar will circulate in the market, and the other half of that 50 cents or 25 cents with flow into the economy, in a continual process. That first 50 cents in additional consumption is the Marginal Propensity to Consume factor (MPC) . With that MPC of 50 cents, the multiplier of any new round of marginal spending, based on Keynes model would be, $1/ (1–mpc) or $1–.5) =$2 of increased spending. Therefore, $2 is created by each dollar introduced into the economy. Essentially if $400billion put into the economy through government spending brings back a rise in income of $600 billion, then the multiple would be 1.5 (Keynes, 1936, 151–174). With greater aggregated demand there is more demand for goods and services (GDP) at any given price level. So, with greater demand for goods and services, there is more need for firms to produce them, and therefore unemployment would fall. A number of moves can be taken in the event of a recession to aid in recovery, the typical fiscal Get more content on HelpWriting.net
  • 19. This paper will examine three theories regarding economic performance. The Keynesian School of thought, the Monetarist School and the Austrian Business Cycle has different views on how the economy can improve during recessions or other economic downturns. Each is relevant to economic issues during The Great Depression in the 1930's to the Great Recession in late 2000's. This paper will discuss the history behind each theory, the specific views on key points in each school of theory and why the founders felt strongly about utilizing those particular concepts. Views on market response and the role of government regarding each philosophy will be considered as well. The Keynesian School During the midst of The Great Depression, John Maynard...show more content... "The assumption of sticky prices is an essential underpinning of the IS–LM model... as the theory of short–run fluctuations" (Ball & Mankiw, 1994, para 2). When demand decreases because of a downturn in the stock market, for example, many businesses will either produce less of the product or stop selling it altogether. This in turn creates an imbalance between the price to make the product and the price to maintain employees who help make the product. Keynes' economic theory focused on short–run alternatives. Aggregate demand or total spending was his main focus in regard to his general theory. Price level remains unchanged and real output grows rapidly creating an increase in aggregate demand; other things equal. Further declaring influence in aggregate demand, through economic intervention policies by the government, is the driving force for economic stimulation. In the 1930's during the peak of The Great Depression the economy saw a decrease in demand because of rises in unemployment, GDP, and an alarming spike ininflation. Keynes purpose in focusing on the behavior of the economy through household and businesses versus the forces of free markets and individual and company behavior; was to prove that inducing aggregate demand could stabilize the economy from such horrid times. Keynes is known for stating "...in the long run, we are all dead" (Blinder, 2014). A large part of Keynes general theory lies on Get more content on HelpWriting.net
  • 20. What is Economics? Essay Many people think that economics is about money. Well, to some extent this is true. Economics has a lot to do with money: with how much money people are paid; how much they spend: what it costs to buy various items; how much money firms earn; how much money there is in total in the economy. But despite the large number of areas in which our lives are concerned with money,economics is more than just the study of money. It is concerned with: В·The production of goods and services: how much the economy produces; what particular combination of goods and services; how much each firm produces; what techniques of production they use; how many people they employ. В·The consumption of goods and services: how much the population as a...show more content... There are three types of resources: В·Human resources: labour The labour force is limited both in number and in skills. В·Natural resources: land and raw materials The world's land area is limited, as are its raw materials. В·Manufactures resources: capital All inputs into production that have themselves been produced: e.g. factories, machines and tools. One must bear in mind that our wants are virtually unlimited, while the resources available to satisfy these wants are limited. In other words when society demands more of a product than can actually be produced to fulfil those wants we have a problem of scarcity. An example of this would be the OPEC oil price shocks between 1973 and 1980. Yes, it is true that the price of oil rose and some individuals used substitutes but the economies of oil importing countries like Germany and Japan fell because OPEC now had more buying power since they had the control over a scarce resource. We can therefore think of oil as having become scarcer in economic terms when its price rose.
  • 21. Earlier I stated that economics is concerned with consumption and production. We can look at it in the terms of demand and supply. It is simply the quantity of a good buyers wish to purchase at each conceivable price. Three factors determine demand: В·Desire В·Willingness to pay В·Ability to pay Whilst supply is the quantity of good sellers wish to sell at each conceivable price. Supply is Get more content on HelpWriting.net
  • 22. Reflection on Microeconomics Class Reflection on Microeconomics Class Microeconomics is the economic influences that impact at the micro, or firm, rather than macro level. The study of this subject is one that is highly valuable for any studying business with the provision of knowledge that will increase understanding of different influences and support the decision making processes. With the knowledge gained, along with the skills in applying that knowledge developed through class work and exercises for the different modules, there has also been the development of increased confidence, both personal and in the theories, in using the relevant concepts and tools in a practical setting. Some of the most important knowledge gained for practical purposes concerned the concept and application of supply and demand. Anecdotal evidence of supply and demand can be seen all around us; including the way that gasoline prices increase and decrease as a result of the way oil prices, which resulted in a basic understanding of the underlying concept. Other areas where this can be seen include examples such as the stock market and even web sites such as eBay with the auction of goods. However, the ability to understand the way this operates not only helps to explain the observed outcomes, the ability to use this to help predict potential outcomes for different scenarios is highly useful. The concepts of elasticity and cross elasticity with different influences, such as disposable income and competing products are all Get more content on HelpWriting.net