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Economics Notes

The document discusses economic concepts including national income, economic growth, GDP, inflation, deflation, the economic cycle, and the impacts of inflation. It provides definitions and explanations of these terms and explores how different economic factors are related.

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Abdullah Akmal
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53 views6 pages

Economics Notes

The document discusses economic concepts including national income, economic growth, GDP, inflation, deflation, the economic cycle, and the impacts of inflation. It provides definitions and explanations of these terms and explores how different economic factors are related.

Uploaded by

Abdullah Akmal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ECONOMICS NOTES

Economic growth is rise in national income.


National income:

Dividends are a form of investment  National income is the value of incomes, production, and
return paid directly to shareholders expenditures over a period.
out of company profits.  These incomes include wages, profits, royalties, dividends, interests,
A royalty is a legally binding payment and money earned abroad.
made to an individual or company for
the ongoing use of their assets,
including copyrighted works,
franchises, and natural resources.

E.g., An author might receive a


share of the proceeds from the sales
of their book

Way to measure economic growth


Limitations of GDP as a measure of growth

1. Inflation
Problem is solved by real GDP: GPD – Inflation

2. Population changes
Needs to be considered when analyzing economic growth patterns.
Problem solved by GDP per capita: GDP/population

3. Statistical errors
4. The value of home-produced goods
5. Hidden economy (Black/ informal economy)
6. GDP and living standards
GDP is used to measure living standards but if GDP increases, living standards don’t
necessarily increase.
Factors that affect living standards:
 Amount of leisure time people have
 The way extra income is distributed between the population
 Weather growth has resulted in pollution
 The quality of goods and services available

7. External costs

THE ECONOMIC CYCLE

ECONOMIC CYCLE: The variations of the rise and fall of GDP.

4 PHASES OF THE ECONOMIC CYCLE:


THE IMPACT OF THE ECONMIC CYCLE ON GROWTH, UNEMPLOYMENT AND INFLATION

Phases of the GROWTH UNEMPLOYMENT INFLATION PROFIT DEMAND


economic cycle
BOOM MORE LESS MORE MORE MORE
DOWNTURN FALL INCREASING DECREASING DECREASING FALL
RESSISION LESS MORE LESS LESS LESS
RECOVERY RISE DECREASING INCREASE INCREASE RISE

THE IMPACTS OF ECONOMIC GROWTH

1. EMPLOYMENT: HIGH
2. STANDARDS OF LIVING: HIGH
3. POVERTY: LESS
4. PRODUCTIVE POTENTIAL: HIGH

5. INFLATION: HIGH (ECONOMY OVERHEATS)


6. THE ENVIORNMENT: UNSUSTAINABLE GROWTH
INFALTION

WHAT IS INFLATION?

WHAT IS DEFLATION?

HOW TO MEASURE INFLATION?

World-wide method

Every month, the government records the price of about 600 goods and services purchased by over
7000 families. An average monthly price is then worked out from all the information gathered. This
average is then converted into an index number.

TYPES OF INFLATION

DEMAND-PULL INFLATION

What is demand-pull inflation?

What could cause demand-pull inflation?

COST-PUSH INFLATION

What is cost-push inflation?

What could cause cost-push inflation?

 Rising costs of imported goods


 Wage increases (businesses compensate for the extra money paid to workers by rising
prices)
 Increase in taxation
 Entrepreneurs try to increase the amount of profit they make

THE RELATIONSHIP BETWEEN INFATION AND INTEREST RATES

The money lent by banks fund extra spending, thus increase demand and cause inflation.

 When interest rates are low, inflation is high (then more borrowing is likely)
 When interest rates are high, inflation is low

IMPACT OF INFLATION

PRICES:

 Rising prices
 Purchasing power of money is low
 Lower living standards (but if wages increase with prices then this is not a problem

WAGES:

 If workers negotiate to have higher wages, a wages/price spiral is created (higher prices
mean higher wages, which mean even higher prices)
 usually creates conflicts and both workers and employers lose out.

EXPORTS

UNEMPLOYMENT: less

 firms need more workers to produce according to the high demand (although it is not always
found)

MENU COSTS:

SHOE LEATHER COSTS:

UNCERTAINTY:

 hard to make investment decisions


 hard to make long term agreements

BUSINESS AND CONSUMER CONFIDENCE:

 CONSUMERS SAVE MUCH OF THEIR MONEY AND SPEND VERY LITTLE


 BUSINESSES DON’T TAKE RISKS
 HYPER INFLATION OCCURS

INVESTMENTS:

 DUE TO UNCERTINITY
 DUE TO LESS BUSINESS CONFIDENCE
 INVETMENT PLANS CNCELLED OR POSTPONED

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