Economics Notes

➡️ Aggregate Demand: Aggregate demand is the total amount of goods and services demanded in the economy at a given overall price level and in a given period of time. It is the sum of consumption, investment, government spending, and net exports. Changes in aggregate demand can cause fluctuations in national income, real output, the price level, and employment.

➡️ Aggregate Supply: Aggregate supply is the total amount of goods and services that firms are willing to produce and sell in the economy at a given overall price level and in a given period of time. It is the sum of all the individual firms➡️ supply curves. Changes in aggregate supply can cause fluctuations in national income, real output, the price level, and employment.

➡️ Equilibrium: Equilibrium occurs when aggregate demand equals aggregate supply. At this point, national income, real output, the price level, and employment are all stable. If aggregate demand increases, then national income, real output, the price level, and employment will all increase. If aggregate supply decreases, then national income, real output, the price level, and employment will all decrease.

➡️ Supply side policies are economic policies that aim to increase the productive capacity of an economy by improving the efficiency of the factors of production. This includes reducing taxes, reducing regulations, and increasing investment in infrastructure and human capital.

➡️ Supply side policies are often used to stimulate economic growth and reduce unemployment. By reducing taxes and regulations, businesses are able to increase their profits and hire more workers. Additionally, investment in infrastructure and human capital can increase the productivity of the economy, leading to higher wages and more jobs.

➡️ Supply side policies can also be used to reduce inflation. By increasing the productive capacity of the economy, supply side policies can reduce the cost of production, leading to lower prices and less inflationary pressure.

➡️ Supply side policies are economic policies that aim to increase the productive capacity of an economy, leading to increased output and employment.
➡️ These policies focus on improving the supply side of the economy, such as through tax cuts, deregulation, and increased investment in infrastructure and technology.
➡️ As a result, these policies can shift the Long Run Aggregate Supply (LRAS) curve to the right, leading to increased output and employment at any given price level.

➡️ Increase in investment in capital goods and technology: Supply side policies aim to increase investment in capital goods and technology, which can lead to increased productivity and productive capacity. This can be achieved through tax incentives, subsidies, and other forms of government support.
➡️ Increase in competition: Supply side policies can also increase competition in the market, which can lead to increased productivity and productive capacity. This can be achieved through deregulation, liberalization, and other measures that reduce barriers to entry.
➡️ Increase in human capital: Supply side policies can also increase human capital, which can lead to increased productivity and productive capacity. This can be achieved through education and training programs, as well as other measures that increase the skills and knowledge of the workforce.

➡️ Training: Improving the skills of the workforce can lead to increased productivity and higher wages, which can lead to increased economic growth.

➡️ Infrastructure Development: Investing in infrastructure such as roads, bridges, and ports can reduce transportation costs, increase access to markets, and create jobs.

➡️ Support for Technological Advancement: Investing in research and development can lead to new products and services, which can increase economic growth and create new jobs.

➡️ Supply side policies are designed to increase the productive capacity of an economy, such as through tax cuts, deregulation, and increased investment in infrastructure. These policies can lead to an increase in aggregate demand (AD) and aggregate supply (AS), resulting in an increase in the equilibrium national income.

➡️ Supply side policies can also lead to an increase in the price level, as the increased demand for goods and services leads to an increase in prices. This can lead to an increase in the level of output, as firms are able to produce more goods and services at higher prices.

➡️ Finally, supply side policies can lead to an increase in the level of employment, as firms are able to hire more workers to meet the increased demand for goods and services. This can lead to an increase in the level of output, as firms are able to produce more goods and services with the additional labor.

aggregate demand

➡️ Aggregate demand is the total demand for goods and services in an economy at a given time. It is the sum of all spending by households, businesses, government and foreign entities.

➡️ Aggregate demand is determined by the interaction of real output, the price level and employment. Real output is the amount of goods and services produced in an economy, while the price level is the average price of goods and services. Employment is the number of people employed in an economy.

➡️ Changes in any of these three factors can affect aggregate demand. For example, an increase in real output will lead to an increase in aggregate demand, while an increase in the price level will lead to a decrease in aggregate demand. Similarly, an increase in employment will lead to an increase in aggregate demand.

➡️ Comparative Advantage: This is the main reason for international trade, as countries can specialize in the production of certain goods and services that they have a comparative advantage in, allowing them to produce them at a lower cost than other countries.
➡️ Market Size: International trade allows countries to access larger markets than they would be able to domestically, allowing them to increase their sales and profits.
➡️ Exchange Rate: Exchange rate fluctuations can make it more profitable for countries to export their goods and services to other countries, as they can take advantage of the exchange rate to increase their profits.

➡️ Absolute advantage is the ability of a country or individual to produce a good or service at a lower cost than another country or individual. It is measured by comparing the amount of output produced with the same amount of inputs.
➡️ Comparative advantage is the ability of a country or individual to produce a good or service at a lower opportunity cost than another country or individual. It is measured by comparing the opportunity cost of producing a good or service with the opportunity cost of producing the same good or service in another country or by another individual.
➡️ Both absolute and comparative advantage are important concepts in international trade, as they help to explain why countries specialize in certain goods and services and why countries trade with each other. They also help to explain why some countries are more successful than others in international trade.

➡️ Specialisation and free trade (trade liberalisation) allow countries to benefit from increased efficiency and productivity, as countries can focus on producing goods and services that they are most efficient at producing. This leads to an increase in the overall output of goods and services, as countries can produce more with fewer resources.
➡️ The trading possibility curve illustrates the potential gains from specialisation and free trade. It shows the maximum amount of one good that can be produced with a given amount of resources, and the maximum amount of another good that can be produced with the same resources. This allows countries to identify the most efficient combination of goods and services to produce, and to identify the potential gains from specialisation and free trade.
➡️ Specialisation and free trade also allow countries to benefit from increased competition, as countries can access a wider range of goods and services from other countries. This leads to lower prices and improved quality of goods and services, as countries are able to access goods and services from countries with lower production costs.

➡️ Exports are goods and services that are produced domestically and sold abroad. Imports are goods and services that are purchased from abroad. The terms of trade refer to the relative prices of exports and imports.
➡️ An increase in exports or a decrease in imports will lead to an improvement in the terms of trade, as the domestic currency will be able to purchase more foreign goods and services. Conversely, a decrease in exports or an increase in imports will lead to a deterioration in the terms of trade.
➡️ Changes in the terms of trade can have a significant impact on a country's economic performance, as it affects the amount of foreign currency that can be earned from exports and the cost of imports. This can lead to changes in the level of economic activity, employment, and inflation.

➡️ The terms of trade measure the relative prices of a country's exports and imports.
➡️ It is calculated by dividing the index of export prices by the index of import prices.
➡️ A higher terms of trade indicates that a country is able to purchase more imports for the same amount of exports.