Economics: Principles and Applications
1.1 Introduction to Economics
The word “economy” originates from the Greek words “Oiko” and “nomos,” meaning “housekeeping” or “household management.” For centuries, economy referred to a set of rules for wise household management. In modern times, this idea has become intertwined with economic politics.
Classical economics defines the field as the study of wealth creation, distribution, and consumption to meet societal needs. Other perspectives emphasize prices and their fluctuations, or the management
Read MoreMacroeconomic Concepts: GDP, Income, and Expenditure
Gross Domestic Product (GDP)
Market value of all final goods and services produced within a country’s borders over a specific time period.
- Valued at market prices, including indirect taxes (Ti) and excluding subsidies (Sb).
Consumption (C)
Household spending on goods and services to meet current personal needs.
- Includes durable and non-durable goods and services.
- Excludes new home purchases (included in Investment).
Investment (I)
Gross capital formation, or business spending on fixed capital acquisition,
Read MoreBusiness Optimization: Value Chain, Work Organization & Management
The Value Chain
One of the objectives for increasing competitiveness is optimizing the value chain. This analysis breaks down business activities into different parts. There are three basic elements:
- Primary Activities: Those related to developing the good or service.
- Support Activities: Those that support primary activities, such as administration.
- Margin: The difference between the total value and the total costs incurred to create that value.
Work Organization
Work organization is a set of rules designed
Read MoreMoney: Origins, Types, and Modern Economic Roles
Money: Origin and Types
Commodity money has inherent value equal to its currency unit value.
A. From Commodity to Paper Money
Fiat money has minimal commodity value but is accepted due to public trust and government decree.
B. Money in the Current Financial System
Modern paper money is backed by confidence, not precious metals. Deposit money, like bank accounts, settles debts.
- Checks mobilize money but don’t create it.
- Credit cards are payment methods, not money.
- Bank money is a bank’s debt to depositors,
Bank Loans, Credits, and Guarantees
Bank Debt and Asset Operations
Bank debt is the source of funds that banks and other financial institutions invest in their assets.
Factors Affecting Asset Operations
Banks’ core business is taking deposits and lending money to customers through various asset operations (loans, credits, discounts, etc.).
This financial intermediation involves the risk of borrowers defaulting. Therefore, institutions must assess the creditworthiness of customers—their capacity to repay the borrowed amount plus interest.
Read MoreMacroeconomic Fundamentals: Demand, Supply, and Economic Policies
Aggregate Demand (AD)
The total amount all sectors of the economy are willing to spend during a given period for a given average price level.
AD = Consumption + Investment + Government Spending + (Exports – Imports).
Aggregate Supply (AS)
The relationship between the average price level and the quantity of goods and services supplied in an economy.
Factors Affecting Aggregate Supply
Average Price Level: If prices and costs remain constant while profits decrease, production lowers.
Production Costs: Rising
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