Substitute goods are two goods which can be used for a similar purpose – they provide different alternatives to consumers. In the case of Android and the iPhone, they offer similar functionality and form, but to some consumers there is a big differential in terms of brand loyalty, meaning for certain types of consumers they …
The current US administration have suggested they want to increase the US budget deficit to enable higher rates of economic growth. What does economic theory state about this idea? “We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, …
The current US administration is proposing tax cuts which ‘The Committee for a Responsible Federal Budget’, estimates it will include $5.8 trillion of total tax cuts over the decade and a net cost of $2.2 trillion through 2027. The problem with these tax cuts It is unclear how these tax cuts will be financed. An …
Monetarists argue that if the Money Supply rises faster than the rate of growth of national income, then there will be inflation. If the money supply increases in line with real output then there will be no inflation. M.Friedman stated: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and …
Readers Question: What are the effects of increased investment on aggregate demand in the short term and the long term. Investment means capital expenditure (e.g. purchasing machines or building bigger factory) Investment is a component of AD – AD+ C+I+G+X-M. Investment spending takes about 15% of AD; it is not as significant as consumer spending …
Perfect competition is a market structure Where there are many small firms There is freedom of entry and exit There is perfect information about price and supply Products are homogenous. Definition of Perfect Competition Outcome of perfect competition Firms are price takers Firms will make normal profit (where AR=AC). If firms made supernormal profits – more …
A lagging indicator is an economic statistic that tends to have a delayed reaction to a change in the economic cycle. A leading indicator is an economic statistic that tends to predict future changes in the economic cycle. A co-incident indicator is a variable that changes with the whole economy. The recession of 2008 was …
Definition of Rational expectations – an economic theory that states – when making decisions, individual agents will base their decisions on the best information available and learn from past trends. Rational expectations are the best guess for the future. Rational expectations suggest that although people may be wrong some of the time, on average they …