Aggregate demand (AD) is the total demand for goods and services produced within the economy over a period of time. Aggregate demand (AD) is composed of various components. AD = C+I+G+ (X-M) C = Consumer expenditure on goods and services. I = Gross capital investment – i.e. investment spending on capital goods e.g. factories and …
Income is a flow. It measures the receipt of money per period of time ( e.g. £200 a week) Wealth is a Stock. It measures the value of a person’s wealth at a given point in time e.g. £150,000 Distribution of income in the UK This shows the top 10% of income earners earnt over …
Dividing the easy way “Its curvy, with a higher bit at the end and a rather aesthetically pleasing slope downwards towards a pretty flat strait bit. The actual graph itself consists of 2 straight lines meeting at the lower left hand corner of the graph and moving away at a 90 anger each …
Definition of Dependency Ratio: The dependency ratio measures the % of dependent people (not of working age) / number of people of working age (economically active) Dependency Ratio = Number of Children (0-15) + Number of Pensioners ( > 65 ) ——————————————————————– Number of Working age 16-65 A dependency ratio of 1.2 means that for …
I’m currently reading a book Blood, Iron and Gold by Christian Wolmar about how railways transformed the world. This interesting extract from the political economist Friedrich List, explains some of the economic benefits of railways: “Railways would carry wood, turf and coal at less than half the present costs. Bavaria, where flour, meat and other …
Firms generally prefer inflation to be low and stable. If inflation rises above 3 or 4%, firms may see a rise in costs and uncertainty. Inflation can also cause firms problems of rising costs, falling profitability, and a decline in international competitiveness. However, inflation is not necessarily damaging for a firm – especially, if they …
The natural rate of interest is the interest rate consistent with maintaining economic growth at its trend rate and stable inflation. Another definition of the natural rate of interest is: “the real interest rate consistent with real GDP equalling its potential level (potential GDP) in the absence of transitory shocks to demand. (FR) In other …
Long-term economic forecasting can be very difficult. A well known joke by John Kenneth Galbraith is: “The only function of economic forecasting is to make astrology look respectable.” However, although there is some truth in this wisecrack, in the short term, we can be reasonably confident about predictions for inflation. In particular, if we see …