The Harrod Domar Model suggests that the rate of economic growth depends on two things: Level of Savings (higher savings enable higher investment) Capital-Output Ratio. A lower capital-output ratio means investment is more efficient and the growth rate will be higher. A simplified model of Harrod-Domar: Harrod-Domar in more detail Level of savings (s) = …
Readers question: What are the functions of government in a capitalist economy? In summary, the economic functions of a government include: Protection of private property and maintaining law and order / national defence. Raising taxes. Providing public services not provided in a free market (e.g. health care, education, street lighting) Limit market failure through the …
The fundamental economic problem is one of scarcity. The basic questions of economics become: What to produce? How to produce? For whom to produce? You could also add When to produce? What to produce? Given limited resources of labour, raw materials and time, economic agents have to decide what to produce. Most primitive economies …
A devaluation means there is a fall in the value of a currency. The main effects are: Exports are cheaper to foreign customers Imports more expensive. In the short-term, a devaluation tends to cause inflation, higher growth and increased demand for exports. A devaluation in the Pound means £1 is worth less compared to other …
The main objectives of firms are: Profit maximisation Sales maximisation Increased market share/market dominance Social/environmental concerns Profit satisficing Co-operatives Business Objectives of firmsWatch this video on YouTube Sometimes there is an overlap of objectives. For example, seeking to increase market share, may lead to lower profits in the short-term, but enable profit maximisation in the …
A look at the main macroeconomic objectives (economic growth, inflation and unemployment, government borrowing) and possible conflicts between these different macro-economic objectives. The main macro-economic objectives Economic growth – positive and sustainable growth (The UK, long-run trend rate is around 2.5%) Low inflation (UK target 2% +/-1) – Low unemployment / Full employment (e.g. around …
In recent years, many advanced (high-income) economies have seen a marked fall in unemployment but only very slow or even negative real wage growth. This phenomenon of slow wage growth, despite falling unemployment, is marked in countries such as the UK, Japan and the US. Reasons to explain this slow growth of wages include Low …
A ‘no deal Brexit’ would involve a departure from the EU, the single market and the EU Customs union. Brexiteers have suggested the UK would adopt WTO rules for trade. This means, in the absence of any trade deal, it would lead to higher export tariffs and trade disruption from non-tariff barriers – the WTO …