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  • Assumptions

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    CHUA XIN YING CELESTE
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    - The document lists various assumptions that may be made when studying economics, such as tightening of foreign labor markets, wage increases outpacing productivity growth, and population growth rates compared to GDP growth. - Many of the assumptions deal with holding certain variables constant, such as inflation rates, exchange rates, income levels in other countries, and prices of other goods. - Other common assumptions include economies operating with spare productive capacity, firms passing on cost savings to consumers, and governments not increasing taxes in response to rising expenditures.

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    - The document lists various assumptions that may be made when studying economics, such as tightening of foreign labor markets, wage increases outpacing productivity growth, and population growth rates compared to GDP growth. - Many of the assumptions deal with holding certain variables constant, such as inflation rates, exchange rates, income levels in other countries, and prices of other goods. - Other common assumptions include economies operating with spare productive capacity, firms passing on cost savings to consumers, and governments not increasing taxes in response to rising expenditures.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    4 views2 pages

    Assumptions

    Uploaded by

    CHUA XIN YING CELESTE
    - The document lists various assumptions that may be made when studying economics, such as tightening of foreign labor markets, wage increases outpacing productivity growth, and population growth rates compared to GDP growth. - Many of the assumptions deal with holding certain variables constant, such as inflation rates, exchange rates, income levels in other countries, and prices of other goods. - Other common assumptions include economies operating with spare productive capacity, firms passing on cost savings to consumers, and governments not increasing taxes in response to rising expenditures.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 2

    ASSUMPTIONS

    *disclaimer: this is just a list of assumptions that I compiled along the way because I’m
    someone who tends to overlook assumptions when studying but this is really non-exhaustive!!
    So don’t fully rely on this list and feel free to continue adding on to it.

    - Tightening of foreign labour market: labour prod remains unchanged


    - Wage push by trade unions: wage rate increase > increase in labour prod
    - Rate of capital accumulation vs capital depreciation
    - Initial state of BOP
    - State of economy (Yf / not Yf)
    - Real value of wealth: inflation rate vs interest rate
    - inflation/deflation: assuming no change in nominal wages
    - Assuming trade partners have higher inflation / country’s inflation rate relative to others
    - Assuming country operates on floating e/r system: short term capital outflow → currency
    depreciation
    - PEDx/m>1
    - Holding expected rate of returns constant: expected rate of returns vs prevailing i/r
    - GPL of one country lower than another
    - Increase in prod > increase in wages → lower unit cost
    - Assuming firms have spare cap → increase prod
    - [unwanted retaliation] assuming no change in TEm → fall in EG
    - Rise in money Y < rise in GPL → PP fall
    - Assuming govt never increase taxes → increase exp → strain budget
    - Assume BOT equilibrium: fall in (X-M) → fall in AD
    - Population growth vs GDP growth (esp impt when looking at SOL)
    - Ageing population: if workers who leave > workers who joined → shrinking LF
    - EG > inflation & population growth
    - Sustained EG > population growth → increase in real Y/capita
    - Recession → assuming normal good, demand fall
    - Assuming total market demand remains constant: fewer firms = each firm higher
    demand
    - Comparing firms in different market sizes: assuming similar cost conditions
    - Depreciation: assuming no domestic substitutes for more expensive imports → fall in purchasing
    power → fall in qty of imported g&s consumed
    - Appreciation = cheaper factor inputs: assuming firms do not pass on cost savings to consumers →
    higher profit margins
    - domestic inflation reduce export competitiveness causing CA and BOP to deteriorate
    assuming no change in KA
    - Appreciation = overall balance of g&s will worsen assuming no changes to other
    countries’ exchange rates or income levels
    - Specialisation: assuming wage of worker does not change → wage spread over a larger output
    - Increase income: assuming prices of other goods remain the same/slower rise than income → rise
    in purchasing power
    - Advertising and innovation: rise in TR > TC
    - Ceteris paribus
    - No positive or negative externalities for merit/demerit goods
    - Assuming economy has spare capacity

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