Three approaches to simple macro economics

These are represented in theoretical and empirical forms as in the neoclassical and endogenous growth models and in growth accounting. The AD-AS model has become the standard textbook model for explaining the macroeconomy. In the simplest case an economy can produce just two goods say "guns" and "butter".

Public goods are goods which are under-supplied in a typical market. It also analyses the pricing of financial instruments, the financial structure of companies, the efficiency and fragility of financial markets[51] financial crisesand related government policy or regulation.

Increased productivity and a more efficient use of resources, they argue, could lead to a higher standard of living. However, eventually the depreciation rate will limit the expansion of capital: Efficiency is improved if more output is generated without changing inputs, or in other words, the amount of "waste" is reduced.

The Economics of Labor and Trade The building blocks of economics are the studies of labor and trade. Their usage rates can be changed easily, such as electrical power, raw-material inputs, and over-time and temp work. Also studied are the efficiency and costs associated with producing goods and services, how labor is divided and allocated, uncertainty, riskand strategic game theory.

Welfare economics is a normative branch of economics that uses microeconomic techniques to simultaneously determine the allocative efficiency within an economy and the income distribution associated with it. Here, utility refers to the hypothesized relation of each individual consumer for ranking different commodity bundles as more or less preferred.


It may be represented as a table or graph relating price and quantity supplied. Other applications of demand and supply include the distribution of income among the factors of productionincluding labour and capital, through factor markets.

When interest rates and inflation are near zero, the central bank cannot loosen monetary policy through conventional means.

Theory and observation set out the conditions such that market prices of outputs and productive inputs select an allocation of factor inputs by comparative advantage, so that relatively low-cost inputs go to producing low-cost outputs.

Supply is the relation between the price of a good and the quantity available for sale at that price. Financial economics or simply finance describes the allocation of financial resources. Part of the cost of making pretzels is that neither the flour nor the morning are available any longer, for use in some other way.

The production—possibility frontier PPF is an expository figure for representing scarcity, cost, and efficiency. Production theory basicsOpportunity costEconomic efficiencyand Production—possibility frontier In microeconomics, production is the conversion of inputs into outputs. The slope of the curve at a point on it gives the trade-off between the two goods.

National income

A term for this is "constrained utility maximization" with income and wealth as the constraints on demand. Monetary policy Central banks implement monetary policy by controlling the money supply through several mechanisms.

Choices must be made between desirable yet mutually exclusive actions. Defenders of fiscal stimulus argue that crowding out is not a concern when the economy is depressed, plenty of resources are left idle, and interest rates are low.

The total value produced by the economy is the sum of the values-added by every industry. Environmental scientist sampling water Some specialized fields of economics deal in market failure more than others. Wages, proprietor's incomes, and corporate profits are the major subdivisions of income.

There is a multiplier effect that boosts the impact of government spending. For example, strong employment data could cause a currency to appreciate if the country has recently been through economic troubles, because the growth could be a sign of economic health and recovery.

Independent central banks are less likely to make decisions based on political motives. Policy options include regulations that reflect cost-benefit analysis or market solutions that change incentives, such as emission fees or redefinition of property rights.

It also demonstrates trade is most efficient when coordinated through a medium of exchangeor money. According to these more recent theories, unemployment results from reduced demand for the goods and services produced through labor and suggest that only in markets where profit margins are very low, and in which the market will not bear a price increase of product or service, will higher wages result in unemployment.

At the point where marginal profit reaches zero, further increases in production of the good stop. The same factors are used to explain differences in the level of output per capita between countries, in particular why some countries grow faster than others, and whether countries converge at the same rates of growth.

All determinants are predominantly taken as constant factors of demand and supply. If costs of production are not borne by producers but are by the environment, accident victims or others, then prices are distorted.

Other factors can change demand; for example an increase in income will shift the demand curve for a normal good outward relative to the origin, as in the figure. Much environmental economics concerns externalities or " public bads ".

Introduction to Macroeconomics – three approaches After the Great Depression in the s, Simon Kuznets first developed the idea of an instrument, which could - just like a clinical thermometer - measure the economic development within a country, the Gross Domestic Product (GDP).

The three approaches to measuring economic activity are the (a) a) Cost, income, and expenditure approaches. The simple deposit expansion multiplier is equal to: (a)one minus the reserve requirement percentage Documents Similar To Macro Economics MCQ'S. Eco Economics Mcqs Vuabid.

Uploaded by. saeedsjaan. Lecturer Economics MCQs[1 5/5(3). "Product", "Income", and "Expenditure" refer to the three counting methodologies explained earlier: the product, income, and expenditure approaches.

However the terms are used loosely. "Product" is the general term, often used when any of the three approaches was actually used. National income. National income is the total value a country’s final output of all new goods and services produced in one year.

Understanding how national income is created is the starting point for macroeconomics. The national income identity. Economics is a branch of social science focused on the production, distribution and consumption of goods and services.

Economics (/ ɛ k ə ˈ n ɒ m ɪ k s, iː k ə-/) is the social science that studies the production, distribution, and consumption of goods and services.

Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes basic elements in the economy, including individual agents .

Three approaches to simple macro economics
Rated 5/5 based on 68 review
National income and national income identity