A typical supply curve shows an increase in supply as wages rise. It slopes from left to right. However, in labour markets, we can often witness a backward bending supply curve. This means after a certain point, higher wages can lead to a decline in labour supply. This occurs when higher wages encourage workers to …
The short run, long run and very long run are different time periods in economics. Quick definition Very short run – where all factors of production are fixed. (e.g on one particular day, a firm cannot employ more workers or buy more products to sell) Short run – where one factor of production (e.g. capital) …
Economic growth means an increase in real GDP. Economic growth means there is an increase in national output and national income. Economic growth is caused by two main factors: An increase in aggregate demand (AD) An increase in aggregate supply (productive capacity) See latest stats on economic growth Demand-side causes In the short term, economic …
A look at the economic effects of a cut in interest rates. Summary Lower interest rates make it cheaper to borrow. This tends to encourage spending and investment. This leads to higher aggregate demand (AD) and economic growth. This increase in AD may also cause inflationary pressures. In theory, lower interest rates will: Reduce the …
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 …
A current account deficit occurs when the value of imports (of goods/services/inv. incomes) is greater than the value of exports. Policies to reduce a current account deficit involve: Devaluation of exchange rate (make exports cheaper – imports more expensive) Reduce domestic consumption and spending on imports (e.g. tight fiscal policy/higher taxes) Supply side policies to …
Investment influences the rate of economic growth because it is a component of aggregate demand (AD) and more importantly influences the productive capacity of the economy. (LRAS) An increase in investment should be a boost to economic growth. Readers Question: Discuss the importance of investment in increasing economic growth. Investment means expenditure on capital spending, …
Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions. For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction. Utility maximisation can also refer to other decisions – for example, the optimal …