Understanding Economic Systems and Sectors
1. Economics Explained
In the 20th century, a new society was created where people interact with money. Currently, the service and leisure sectors are of great importance in industrial development, indicating that we live in a service-based society.
2. Functions of the State in the Economy
- Economics – It establishes the rules regulating economic activity.
- Private Sector Support – It provides support for the promotion of the private sector.
- Sector and Area Development – It assists sectors and areas facing
Understanding Economics: Microeconomics and Macroeconomics
Economic Principles
Economy: The study of how humans meet their needs using scarce resources. It deals with the production of goods and services (supply) and consumption of goods and services (demand). Factors of production include natural, human, and manufactured resources. Economic theory attempts to explain the process of managing scarce resources.
Methodology
- Set assumptions about the behavior of agents and the logical context.
- Deduce social conclusions or predictions about the studied reality.
- Contrast
Open Economy: Exercises and Solutions
Exercise 1 (Topic 6)
Consider an open economy, where the goods market is characterized by:
- C = 5 + 0.1 * (Y – T)
- I = 4 + 0.3 * Y
- IM = 0.3 * Y * ε
- X = 0.2 * Y* – 2 * ε
We also know the government sets a level of public spending and of taxes equal to 8, the real exchange rate is 1.4, and foreign income is 1. Given this information, what is the value of autonomous spending in this economy?
The demand for domestic goods in this economy is:
Z = C + I + G + NX = 5 + 0.1 * (Y – T) + 4 + 0.3 * Y + 8 – 0.3 * Y
Read MoreUnderstanding Key Economic Concepts: Fiscal Policy, Unemployment, and More
Key Economic Concepts Explained
Restrictive Fiscal Policies: A tight fiscal policy aims to cool down the economy by reducing public spending and/or increasing taxes. This leads to lower aggregate demand and reduces pressure on prices. With restrictive policies, lower public spending and higher taxes decrease aggregate demand, thereby lowering production, employment, and prices.
Expansionary Fiscal Policy: This involves reducing taxes, increasing financial expenses, or transfers to increase production
Read MoreUnderstanding Economics: Key Concepts and Variables
Definition of Economics
Economics is the study of how society decides what to produce, how to produce it, and for whom to produce it, given the scarcity of available resources.
It is the science that deals with the management of scarce resources to produce goods and services and distribute them for consumption among members of society.
Microeconomics
Microeconomics studies the economic behavior of individual elements within an economy, such as the price of a good, its demand, the supply of a particular
Read MoreFinancial Assets, Markets, and Securities: Key Concepts
Chapter 1
Real & Financial Assets: In aggregate for the entire economy, the sum of financial assets equals ZERO, and the sum of real assets equals WEALTH OF THE ECONOMY.
Debt Security: A security that pays a specified cash flow over a specified period.
Derivative Security: A security that provides a payoff that depends on the values of other assets.
Equity Security: A security that represents an ownership interest in a corporation.
Types of Financial Assets (Less Risky to More Risky):
- Six-month certificate