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MR. MOHD SHAHIDAN BIN SHAARI Lecturer of Economics School of business innovation and techno-preneurship UniMAP Bachelor’s in Economics Master’s in Economics Principles of Economics second e…Full description
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Feenstra labor economics chapter 3
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AP ECON MACROECONOMICS
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Guided works on econ problems
NATIONAL INCOME AND PRODUCT ACCOUNTS CONSUMPTION
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is the amount of money spent on goods and services which yield direct satisfaction. The part of income that is not consumed is saving.
CONSUMPTION FUNCTION
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is a functional relationship between income and consumption.
SAVING FUNCTION
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is considered as the mirror image of the consumption function.
Consumption may be categorized in to the following: Durable goods Nondurable goods Services
AVERAGE PROPENSITY TO CONSUME CONSUME (APC)
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Refers to the proportion of income devoted to consumption.
AVERAGE PROPENSITY TO SAVE SAVE (APS)
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is the proportion of income (of an individual or the whole economy) which is not spent on consumption of goods and services.
DETERMINANTS OF CONSUMPTION Wealth Price level Goods and Services
Consumer Expectation Interest Rate
Export Business Firms
Households
THE SAVINGS FLOW
Investment
Financial Intermediaries
Saving
SAVING AND INVESTMENT 1. SAVINGS - Contribute to the economy if these are placed in banks and other financial institutions. They become funds for investments. 2. INVESTMENT - Expands the economy. SOURCES AND USES OF INVESTMENT FUNDS
Private Person Business Firms Government
Savin s
Construction
Financial Institutions/ Foreign Countries
Investment Funds
Borrowin
Machinery And Equipment
Public Works
INVESTMENT, POTENTIAL OUTPUT AND ECONOMIC GROWTH
New buildings New equipment Manpower training
Investment Spending
Higher level of employment of resources
Increased capacity of Business firms
Bigger potential output and aggregate supply
MULTIPLIER EFFECT An increase in investments generally gives rise to an increase in inc ome, a number of times larger than the original investments. The ratio of a change in income to a change in investments is called the multiplier. PARADOX OF THRIFT The attempt of the consumers to save more will reduce saving.
BUSINESS CYCLE UNEMPLOYMENT AND INFLATION Fujiko M. Yonaha
FOUR PHASES OF BUSINESS CYCLE Prosperity Phase: Recession Phase: Depression Phase: Recovery Phase:
Expansion or Boom or Upswing of economy. From prosperity to recession (upper turning point). Downswing of economy. F rom depression to prosperity (lower turning Point).
CAUSES OF BUSINESS CYCLE Sunspot Theory Innovation Theory Self Generating Theory UNEMPLOYMENT Two types of unemployment: 1. Unavoidable unemployment Frictional Unemployment Structural unemployment Cyclical Unemployment 2. Avoidable Unemployment FULL EMPLOYMENT -
referred to as the natural rate of unemployment
UNDEREMPLOYMENT -
refers to an employment situation that is insufficient in some important way for the worker, relative to a standard.
INFLATION -
refers to a “rise in the average level of prices.” INFLATION =
CAUSES OF INFLATION cost-push inflation Demand –pull inflation Inertial inflation
DEFLATION Is a sustained decrease in the average price level. This is in sharp contrast to inflation. HYPERINFLATION Refers to a period of extremely high inflation reaching 100,000 % and above. LOSERS AND GAINERS IN INFLATION 1. Losers Fixed income earners Pensioners Creditor 2. Gainers Businessmen Speculators Debtors TWO METHODS USED IN CONTROLLING INFLATION: Monetary policy Fiscal Policy