Economics Notes

➡️ Average rate of tax (ART) is the total amount of tax paid divided by the total taxable income. It is the average amount of tax paid on each dollar of income.

➡️ Marginal rate of tax (MRT) is the rate of tax paid on the last dollar of income earned. It is the rate of tax paid on the next dollar of income earned.

➡️ ART and MRT are important concepts in economics as they can affect the incentives to work, save, and invest. They can also influence the distribution of income and wealth in an economy.

➡️ The AD approach to national income determination is based on the idea that total spending in an economy is equal to total output. This approach uses the aggregate demand (AD) curve to measure total spending in the economy.
➡️ The income approach to national income determination is based on the idea that total income in an economy is equal to total output. This approach uses the sum of all incomes earned by households, businesses, and the government to measure total income in the economy.
➡️ The multiplier process is used to calculate the effect of a change in spending on the level of national income. The multiplier is the ratio of the change in national income to the change in spending. It is used to measure the effect of an increase or decrease in spending on the level of national income.

➡️ An increase in AD will lead to an increase in national income, as the multiplier effect will cause a larger increase in national income than the initial increase in AD.
➡️ A decrease in AD will lead to a decrease in national income, as the multiplier effect will cause a larger decrease in national income than the initial decrease in AD.
➡️ The size of the multiplier effect depends on the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) of the economy.

➡️ Consumption: Consumption is the largest component of AD and is determined by factors such as disposable income, consumer confidence, and interest rates. An increase in disposable income will lead to an increase in consumption, while a decrease in consumer confidence will lead to a decrease in consumption.

➡️ Investment: Investment is the second largest component of AD and is determined by factors such as business confidence, the cost of capital, and the availability of credit. An increase in business confidence will lead to an increase in investment, while a decrease in the cost of capital will lead to a decrease in investment.

➡️ Government Spending: Government spending is the third largest component of AD and is determined by factors such as fiscal policy, taxation, and government borrowing. An increase in government spending will lead to an increase in AD, while a decrease in taxation will lead to a decrease in AD.

➡️ Aggregate demand: the total demand for goods and services in an economy
➡️ Aggregate supply: the total amount of goods and services that firms are willing to produce
➡️ Equilibrium: the point at which aggregate demand and aggregate supply intersect, resulting in a balance between the two

➡️ Investment: domestic and foreign investment
➡️ Impact on economic growth: increased capital stock, increased productivity, increased employment
➡️ Impact on income distribution: increased wages, increased profits, increased inequality

➡️ Investment is a key factor in economic growth, as it increases the capital stock and leads to higher productivity and output.
➡️ Autonomous investment is investment that is not dependent on the level of output, while induced investment is investment that is dependent on the level of output.
➡️ The accelerator is a theory that states that the rate of investment is proportional to the rate of change in output. This means that when output increases, investment increases, and when output decreases, investment decreases.

➡️ Increased economic activity: Government spending can stimulate economic activity by creating jobs and increasing incomes. This can lead to increased consumer spending, which can further stimulate economic growth.
➡️ Increased tax revenue: Government spending can also lead to increased tax revenue, as businesses and individuals benefit from the increased economic activity.
➡️ Increased public services: Government spending can also be used to provide public services, such as education, healthcare, and infrastructure, which can improve the quality of life for citizens.

➡️ Gross Domestic Product (GDP): The total value of all goods and services produced in a country in a given period of time.
➡️ Employment: The number of people employed in a country.
➡️ Inflation: The rate at which prices for goods and services increase over time.

➡️ Full employment level of national income is the level of income at which all available resources are fully utilized and there is no cyclical unemployment. It is also known as the natural level of national income.

➡️ Equilibrium level of national income is the level of income at which aggregate demand and aggregate supply are equal. It is the level of income at which the economy is in a state of balance and there is no inflationary or deflationary pressure.

➡️ The difference between the full employment level of national income and the equilibrium level of national income is known as the output gap. This gap indicates the degree of slack in the economy and can be used to measure the degree of economic activity.

➡️ Inflationary Gap: An inflationary gap is an economic term used to describe the difference between the actual and potential output of an economy. It occurs when aggregate demand is greater than aggregate supply, resulting in an increase in prices and a decrease in output.
➡️ Deflationary Gap: A deflationary gap is an economic term used to describe the difference between the actual and potential output of an economy. It occurs when aggregate demand is less than aggregate supply, resulting in a decrease in prices and an increase in output.
➡️ Impact: Inflationary and deflationary gaps can have a significant impact on an economy. Inflationary gaps can lead to higher prices, increased unemployment, and slower economic growth. Deflationary gaps can lead to lower prices, increased employment, and faster economic growth.

➡️ Economic growth is the increase in the production of goods and services over a period of time. It is measured by the increase in a country's gross domestic product (GDP).
➡️ Sustainability is the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. It is achieved through the use of renewable resources, efficient use of resources, and the reduction of pollution and waste.
➡️ Economic growth and sustainability are closely linked. Sustainable economic growth requires the use of resources in a way that does not deplete them, and that does not damage the environment. It also requires the development of policies and practices that promote economic growth while protecting the environment.