Economic Factors: Demand, Supply, and Public Sector
Factors Affecting Economic Progress
Economic progress is influenced by several factors:
- Internal market forces: Consumption, investment, etc.
- External disturbances: Conflicts, etc.
- Government actions: Fiscal policy, monetary policy, etc.
Aggregate Demand
Aggregate demand represents the total planned expenditure in an economy.
Consumption
Consumption refers to the total expenditure incurred by households on goods and services within a specific period. It depends on:
- Disposable family income.
- Interest rates.
- Availability of credit.
Savings (Ahorro): Savings are crucial for protection against unemployment and illness, financing major spending projects, and generating extra income for investment.
Indicators of consumption:
- Continuous survey of household budgets.
- Car registrations.
- Supermarket sales.
- Other indicators (e.g., gasoline imports).
Economic Investments
Investment refers to the acquisition of production goods to produce other goods or services.
Types of Investment:
- Replacement: Replacing worn-out machinery and materials.
- Renewal: Replacing obsolete equipment.
- Extension: Acquiring new equipment to increase production.
Investment depends on:
- Interest rates.
- Capacity utilization (it’s not worthwhile to invest if the company isn’t using its full capacity).
- Confidence in the future.
Multiplier Effect: The total increase in expenditure resulting from an initial investment, leading to a chain reaction of numerous subsequent investments.
Demand and Aggregate Demand
There are two key differences:
- Aggregate demand informs us about the total of all goods and services produced in an economy.
- Prices refer to the average level of prices.
Aggregate Supply
Aggregate supply is the total amount of goods and services that businesses in a country are willing to produce and sell at various prices.
The Underground Economy
The underground economy is the part of economic activity that is not included in the GDP.
Problems with the underground economy:
- Reduced government revenue (necessitating increased tax revenue to offset losses).
- Precarious employment (lack of worker rights).
- Prevents others from working.
- Risks to health, safety, or the collective.
Components of the Public Sector
- Government:
- Central administration (state and autonomous organizations).
- Territorial administrations (municipalities and councils).
- Social security (financed by social contributions).
- Other public entities.
- Public companies (with fundamental goals for the country’s economy).
- Institutions of the EU.
Public Budget: The amount to be spent during the year and what is being spent. It is predicted for the necessary financing income: state budgets (income and expenditure of the State Public Sector), regional and municipal budgets.
Budgetary Balance
If costs are not equal to income, a deficit or surplus occurs.
Public Expenditure
Expenditure made by public administrations.
Spending allocation:
- 34% Social protection (pensions, etc.)
- 14% Health expenditure
- 13% General services
- 11% Education and economic/investment matters
- 5% Public order and safety
- 4% Cultural and recreational expenses
- 3% Defense, housing, and community services
- 2% Environmental protection
Types of expenses:
- Current or consumption (payments to officials, etc.).
- Capital expenses (ports, airports, etc.).
- Transfer expenses (pensions, scholarships, etc.).
Taxes
- Taxes:
- Direct taxes: Applied directly to the economic capacity of taxpayers, such as income or asset possession.
- Indirect taxes: Applied indirectly to the economic capacity of taxpayers.
- Fees: Paid for the use of a good or service offered by the administration.
- Special contributions: Paid because one benefits from a public work or service.
Character of income tax:
- Regressive: Levied equally on all persons.
- Proportional: Levied proportionally.
- Progressive: Taxed more in proportion to the economic capacity of individuals.