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REV Midterms Macro
REV Midterms Macro
REV Midterms Macro
There are four fundamental types of economic resources: Land, Labor, Capital, Entrepreneurship
Economic resource 1: Land
Land is an economic resource that includes all natural physical resources like gold, iron, silver, oil etc. Some countries
have very rich natural resources and by utilizing these resources they enrich their economy to the peak.
Such as the oil and gas development of North Sea in Norway and Britain or the very high productivity of vast area of
farm lands in the United States and Canada. Some other developed countries like Japan have smaller economic
resources. Japan is the second largest economy of the world but reliant on imported oil.
The human input in the production or manufacturing process is known as labor. Workers have different work capacity.
The work capacity of each worker is based on his own training, education and work experience.
This work capacity is matters in the size and quality of work force. To achieve the economic growth the raise in the
quality and size of workforce is very essential.
In economics, Capital is a term that means investment in the capital goods. So, that can be used to manufacture other
goods and services in future.
Following are the factors of capital:
Fixed Capital
It includes new technologies, factories, buildings, machinery and other equipments.
Working Capital
It is the stock of finished goods or components or semi-finished goods or components. These goods or components will
be utilized in near future.
Capital productivity
New features of capital building, machinery or technology are commonly used to improve the productivity of the labor.
Such as the new ways of farming helps to enhance the productivity of the agriculture sector and give more valuable jobs
in this sector which motivates people to come out for work.
Infrastructure
It is a stock of capital that is used to maintain the whole economic system. Such as roads, railway tracks, airports etc.
The Entrepreneur is person or individual who wants to supply the product to the market, in order to make
profit. Entrepreneurs usually invest their own capital in their business. This financial capital is generally based on their
savings and they take risks linked to their investments. This risk-taking can be rewarded by the profit of the business.
Entrepreneurship is, thus, an important economic resource.
National income accounting refers to the government bookkeeping system that measures the health of an economy,
projected growth, economic activity, and development during a certain period of time. It helps in assessing the
performance of an economy and the flow of money in an economy. The double entry system principle of accounting is
used to prepare the national income accounts.
National income accounting is a double-entry accounting system used by governments to measure how well a country’s
economy is performing.
https://corporatefinanceinstitute.com/resources/knowledge/economics/national-income-accounting/
If you've ever wondered how the supply of a product matches demand, or how market prices are set, the law of supply
and demand holds the answers. Higher prices cause supply to increase while demand drops. Lower prices boost demand
while limiting supply. The market-clearing price is one at which supply and demand are balanced.
The Law of Supply and Demand is essential because it helps investors, entrepreneurs, and economists understand and
predict market conditions. For example, a company considering a price hike on a product will typically expect demand
for it to decline as a result, and will attempt to estimate the price elasticity and substitution effect to determine whether
to proceed regardless.
When gasoline consumption plunged with the onset of the COVID-19 pandemic in 2020, prices quickly followed suit
because the industry ran out of storage space. The price decline, in turn, served as a powerful signal to suppliers to curb
gasoline production. Conversely, crude oil prices in 2022 provided producers with additional incentive to boost output.
https://www.investopedia.com/terms/l/law-of-supply-
demand.asp#:~:text=The%20law%20of%20supply%20and%20demand%20combines%20two%20fundamental%20economic,supply%20constricts%20while%20deman
d%20grows.
Income. An increase in disposable income enabling consumers to be able to afford more goods. Higher income could
occur for a variety of reasons, such as higher wages and lower taxes.
Credit facilities. If it is easier and cheaper to borrow, this may encourage consumers to buy expensive items on credit,
for example, cars and foreign holidays.
Quality. An increase in the quality of the good e.g. better quality digital cameras encourages people to buy one.
Advertising can increase brand loyalty to goods and increase demand. For example, higher spending on advertising by
Coca Cola has increased global sales.
Substitutes. An increase in the price of substitutes, e.g. if the price of Samsung mobile phones increases, this will
increase the demand for Apple iPhones – a major substitute for the Samsung.
Weather: In cold weather, there will be increased demand for fuel and warm weather clothes.
Expectations of future price increases. A commodity like gold may be bought due to speculative reasons; if you think it
might go up in the future, you will buy now.
Change in circumstances. The Covid lockdown of 2020/21 led to a significant fall in demand for leisure and going out to
the cinema, but it led to a boom in demand for electrical goods, like TVs and Netflix subscriptions.
Economic cycle. In a recession, people will cut back on spending, even if their income remains steady. This is because
they fear the possibility of losing job, so they will take risk averse approach and reduce spending. Similarly in an
economic boom, confidence will be high and incomes rising – causing more demand
Wealth-effect. If households experience an increase in their wealth (e.g. house prices rise), then they will be more
willing to spend. This is because they can re-mortgage their house to get equity withdrawal and/or they will feel more
confidence because they own more assets.
https://www.economicshelp.org/microessays/equilibrium/demand/
A decrease in costs of production. This means business can supply more at each price. Lower costs could be due to lower
wages, lower raw material costs
More firms. An increase in the number of producers will cause an increase in supply.
Investment in capacity. Expansion in the capacity of existing firms, e.g. building a new factory
The profitability of alternative products. If a farmer sees the price of biofeuls increase, he may switch to growing crops
for biofuels on all his fields and this will lead to a fall in the supply of food, such as wheat.
Related supply. If there is an increase in the supply of beef (from cows) then there will also be an increase in the supply
of leather.
Productivity of workers. If workers become more motivated and work hard, then there will be a significant increase in
output and supply.
Technological improvements. Improvements in technology, e.g. computers or automation, reducing firms costs.
Lower taxes. Lower direct taxes (e.g. tobacco tax, VAT) reduce the cost of goods.
Government subsidies. Increase in government subsidies will also reduce the cost of goods, e.g. train subsidies reduce
the price of train tickets.
https://www.economicshelp.org/microessays/equilibrium/supply/#:~:text=Supply%20will%20be%20determined%20by,workers%20to%20produce%20the%20good.
Macroeconomics focuses on the economy as a whole (or on whole economies as they interact).
In thinking about the overall health of the macroeconomy, it is useful to consider three primary goals: economic growth,
low unemployment, and low inflation.
Economic growth ultimately determines the prevailing standard of living in a country.
Economic growth is measured by the percentage change in real (inflation-adjusted) gross domestic product. A growth
rate of more than 3% is considered good.
Unemployment, as measured by the unemployment rate, is the percentage of people in the labor force who do not have
a job. When people lack jobs, the economy is wasting a precious resource-labor, and the result is lower goods and
services produced.
Inflation is a sustained increase in the overall level of prices, and is measured by the consumer price index. If many
people face a situation where the prices that they pay for food, shelter, and healthcare are rising much faster than the
wages they receive for their labor, there will be widespread unhappiness as their standard of living declines.
Policy Tools
National governments have two tools for influencing the macroeconomy. The first is monetary policy, which involves
managing the money supply and interest rates. The second is fiscal policy, which involves changes in government
spending/purchases and taxes.
https://opentextbc.ca/principlesofeconomics/chapter/introduction-to-the-macroeconomic-perspective/
Neoclassical economists view consumption as the final purpose of an economic activity, hence, the per person value is
an important factor in determining the productive success in an economy.
https://www.economicsdiscussion.net/income/saving-function-of-income-meaning-and-relationship-between-saving-and-income/653
https://corporatefinanceinstitute.com/resources/knowledge/economics/consumption/
An investment is an asset or item acquired with the goal of generating income or appreciation.
Appreciation refers to an increase in the value of an asset over time.
An investment can refer to any mechanism used for generating future income. This includes the purchase of bonds,
stocks, or real estate property, among other examples.
https://www.investopedia.com/terms/i/investment.asp
https://www.economicsonline.co.uk/Managing_the_economy/Investment.html