Author: Saim Khalid

A set of configurable, graphically appealing, online interactive games that work across laptops, iOS (Apple) and Android devices. Instructors can customise the games, or use default settings, and students join by entering a class code. The instructor gets a graphical analysis of outcomes immediately at the end of the session, for use in class discussion. The site has course guides that suggest how to sequence the games in different Economics courses, and each game has references to relevant papers. The site’s apps can also be used to administer individual survey or assessment questions online.

Economics-games.com

A set of interactive games and simulations that are played in the browser. The tutor chooses a game and a number of players, then is given unique logins to distribute to learners. 14 games are played against the computer. In the other 47 games, learners play against each other.

Christopher R. Makler, Stanford University

Online textbook using interactive graphs created by Makler. Twenty-four chapters, each with multiple graphs, are split into six sections: Scarcity and Choice, Consumer Theory, the Theory of the Firm, Competitive Equilibrium, Exchange, and Public Economics. It is possible and allowed to embed the graphs in other sites. As of 2023, this is a work-in-progress, but with a lot of content.

Christopher R. Makler, Stanford University

A suite of around 350 interactive graphs, illustrating microeconomic, financial and mathematical concepts, that run in a modern web browser without additional technology. They can be used in lectures or incorporated into other sites via an iframe.

More than twenty interactive workbooks for Microeconomics, Macroeconomics and Econometrics, created using the Wolfram programming language. Each chart illustrates a concept or model, and gives many parameters that the reader can adjust to see the resulting changes. The interactive workbooks can be viewed online or downloaded to the reader’s computer to run in the free Wolfram player. These were created by Angulo while still an undergraduate at Warwick.

Inflation

In economics, inflation means rise in the general level of prices of goods and services over a period of time in an economy. Inflation may affect the economy either in positive way or negative way.

Causes of Inflation

The causes of inflation are as follows −

• Inflation may occur sometimes due to excessive bank credit or currency depreciation.
• It may be caused due to increase in demand in relation to supply of all types goods and services due to a rapid increase in population.
• Inflation also may be also be caused by a change in the value of production costs of goods.
• Export boom inflation also comes into existence when a considerable increase in exports may cause a shortage in the home country.

Inflation is also caused by decrease in supplies, consumer confidence, and corporate decisions to charge more.

Measures to Control Inflation

There are many ways of controlling inflation in an economy −

Monetary Measure

The most important method of controlling inflation is monetary policy of the Central Bank. Most central banks use high interest rates as a way to fight inflation. Following are the monetary measures used to control inflation −

• Bank Rate Policy − Bank rate policy is the most common tool against inflation. The increase in bank rate increases the cost of borrowings which reduces commercial banks borrowing from the central bank.
• Cash Reserve Ratio − To control inflation, the central bank needs to raise CRR which helps in reducing the lending capacity of the commercial banks.
• Open Market Operations − Open market operations mean the sale and purchase of government securities and bonds by the central bank.

Fiscal Policy

Fiscal measures are another important set of measures to control inflation which include taxation, public borrowings, and government expenses. Some of the fiscal measures to control inflation are as follows −

• Increase in savings
• Increase in taxes
• Surplus budgets

Wage and Price Controls

Wage and price controls help in controlling wages as the price increases. Price control and wage control is a short term measure but is successful; since in long run, it controls inflation along with rationing.

Impact of Inflation on Managerial Decision Making

Inflation is of course the all too familiar problem of too much money (demand) chasing too few goods (supply), with the upshot of prices and expectations everywhere tending to rise higher and higher.

The Role of a Manager

In these circumstance, a business manager has to take appropriate decisions and measures based on macro economic uncertainties like inflation and the occasional recession.

A true test of a business manager lies in delivering profitability ie., the extent to which he increases revenues and also reduces costs even during economic uncertainties.

In the current scenario, they are supposed to get faster solutions to the problems of coping with soaring prices (for example) by understanding the process of how inflation distorts the traditional functions of money along with recommendations.

The Effect of Management

The bottom-line impact is that, Customers / clients reward efficient management with profits and penalize inefficient management with losses. Hence, it is advisable to be well prepared to tackle these areas.

Business cycles are the rhythmic fluctuations in the aggregate level of economic activity of a nation. Business cycle comprises of following phases −

• Depression
• Recovery
• Prosperity
• Inflation
• Recession

Business cycles occur because of reasons such as good or bad climatic conditions, under consumption or over consumption, strikes, war, floods, draughts, etc

Theories of Business Cycles

Schumpeters Theory of Innovation

According to Schumpeter, an innovation is defined as the development of a new product or introduction of a new product or a process of production, development of new market or a change in the market.

Over − Investment Theory

Professor Hayek says, primary cause of business cycles is monetary overestimate. He says business cycles are caused by over investment and consequently by over production. When a bank charges rate of interest below the equilibrium rate, the business has to borrow more funds which leads to business fluctuations.

Monetary Theory

According to Professor Hawtrey, all the changes in the business cycles take place due to monetary policies. According to him the flow in the monetary demand leads to prosperity or depression in the economy. Cyclical fluctuations are caused by expansion and contraction of bank credit. These conditions increase or decrease the flow of money in the economy.

Stabilization Policies

Stabilization policies are also known as counter cycle policies. These policies try to counter the natural ups and downs of business cycles. Expansionary stabilization policies are useful to reduce unemployment during contraction and contractionary policies are used to reduce inflation during expansion.

Instruments of Stabilization Policies

The flow chart of stablilization policies is described below:

Monetary Policy

Monetary policy is employed by the government as an effective tool to promote economic stability and achieve certain predetermined objectives. It deals with the total money supply and its management in an economy. Objectives of monetary policy include exchange rate stability, price stability, full employment, rapid economic growth, etc.

Fiscal Policy

Fiscal policy helps to formulate rational consumption policy and helps to increase savings. It raises the volume of investments and the standards of living. Fiscal policy creates more jobs, reduces economic inequalities and controls, inflation and deflation. Fiscal policy as an instrument to fight depression and create full employment conditions is much more effective as compared to monetary policy.

Physical Policy

When monetary policy and fiscal policy are inadequate to control prices, government adapts physical policy. These policies can be introduced swiftly and thus the result is quite rapid. Theses controls are more discriminatory as compared to monetary policy. They tend to vary effectively in the intensity of the operation of control from time to time in various sectors.

Definition of Economic Growth

Economic growth refers to an increase in the goods and services produced by an economy over a particular period of time. It is measured as a percentage increase in real gross domestic product which is GDP adjusted to inflation. GDP is the market value for all the final goods and services produced in an economy.

Theories of Economic Growth

The Classical Approach

Adam Smith laid emphasis on increasing returns as a source of economic growth. He focused on foreign trade to widen the market and raise productivity of trading countries. Trade enables a country to buy goods from abroad at a lower cost as compared to which they can be produced in the home country.

In modern growth theory, Lucas has strongly emphasized the role of increasing returns through direct foreign investment which encourages learning by doing through knowledge capital. In Southeast Asia, the newly industrialized countries (NICs) have achieved very high growth rates in the last two decades.

The Neoclassical Approach

The neoclassical approach to economic growth has been divided into two sections −

• The first section is the competitive model of Walrasian equilibrium where markets play a very crucial role in allocating the resources effectively. To secure the optimal allocation of inputs and outputs, markets for labor, finance and capital have been used. This type of competitive paradigm was used by Solow to develop a growth model.
• The second section of the neoclassical model assumes that technology is given. Solow used the interpretation that technology in the production function is superficial. The point is that R&D investment and human capital through learning by doing were not explicitly recognized.

The neoclassical growth model developed by Solow fails to explain the fact of actual growth behavior. This failure is caused due to the models prediction that per capita output approaches a steady state path along which it grows at a rate that is given. This means that the long-term rate of national growth is determined outside the model and is independent of preferences and most aspects of the production function and policy measures.

The Modern Approach

The modern approach to market comprises of several features. The new economy emerging today is spreading all over the world. It is a revolution in knowledge capital and information explosion. Following are the important key elements −

• Innovation theory by Schumpeter, inter firm and inter industry diffusion of knowledge.
• Increasing efficiency of the telecommunications and micro-computer industry.
• Global expansion of trade through modern externalities and networks.

Modern theory of economic growth focuses mainly on two channels of inducing growth through expenses spent on research and development on the core component of knowledge innovations. First channel is the impact on the available goods and services and the other one is the impact on the stock of knowledge phenomena.

Factors Determining the National Income

According to Keynes there are two major factors that determine the national income of an economy −

Aggregate Supply

Aggregate supply comprises of consumer goods as well as producer goods. It is defined as total value of goods and services produced and supplied at a particular point of time. When goods and services produced at a particular point of time is multiplied by the respective prices of goods and services, it helps us in getting the total value of the national output. The formula for determining the aggregate national income is follows −

Aggregate Income = Consumption(C) + Saving (S)

Few factor prices such as wages, rents are rigid in the short run. When demand in an economy increases, firms also tend to increase production to some extent. However, along with the production, some factor prices and the amount of inputs needed to increase production also increase.

Aggregate Demand

Aggregate demand is the effective aggregate expenditure of an economy in a particular time period. It is the effective demand which is equal to the actual expenditure. Aggregate demand involves concepts namely aggregate demand for consumer goods and aggregate demand for capital goods. Aggregate demand can be represented by the following formula −

AD = C + I

As per Keynes theory of nation income, investment (I) remains constant throughout, while consumption (C) keeps changing, and thus consumption is the major determinant of income.

Definition of National Income

The total net value of all goods and services produced within a nation over a specified period of time, representing the sum of wages, profits, rents, interest, and pension payments to residents of the nation.

Measures of National Income

For the purpose of measurement and analysis, national income can be viewed as an aggregate of various component flows. The most comprehensive measure of aggregate income which is widely known is Gross National Product at market prices.

Gross and Net Concept

Gross emphasizes that no allowance for capital consumption has been made or that depreciation has yet to be deducted. Net indicates that provision for capital consumption has already been made or that depreciation has already been deducted.

National and Domestic Concepts

The term national denotes that the aggregate under consideration represents the total income which accrues to the normal residents of a country due to their participation in world production during the current year.

It is also possible to measure the value of the total output or income originating within the specified geographical boundary of a country known as domestic territory. The resulting measure is called “domestic product”.

Market Prices and Factor Costs

The valuation of the national product at market prices indicates the total amount actually paid by the final buyers while the valuation of national product at factor cost is a measure of the total amount earned by the factors of production for their contribution to the final output.

GNP at market price = GNP at factor cost + indirect taxes – Subsidies.

NNP at market price = NNP at factor cost + indirect taxes – Subsidies

Gross National Product and Gross Domestic Product

For some purposes we need to find the total income generated from production within the territorial boundaries of an economy irrespective of whether it belongs to the inhabitants of that nation or not. Such an income is known as Gross Domestic Product (GDP) and found as −

GDP = GNP – Nnet Factor Income From Abroad

Net Factor Income from Abroad = Factor Income Received From Abroad – Factor Income Paid Abroad

Net National Product

The NNP is an alternative and closely related measure of the national income. It differs from GNP in only one respect. GNP is the sum of final products. It includes consumption of goods, gross investment, government expenditures on goods and services, and net exports.

GNP = NNP − Depreciation

NNP includes net private investment while GNP includes gross private domestic investment.

Personal Income

Personal income is calculated by subtracting from national income those types of incomes which are earned but not received and adding those types which are received but not currently earned.

Personal Income = NNP at Factor Cost − Undistributed Profits − Corporate Taxes + Transfer Payments

Disposable Income

Disposable income is the total income that actually remains with individuals to dispose off as they wish. It differs from personal income by the amount of direct taxes paid by individuals.

Disposable Income = Personal Income − Personal taxes

Value Added

The concept of value added is a useful device to find out the exact amount that is added at each stage of production to the value of the final product. Value added can be defined as the difference between the value of output produced by that firm and the total expenditure incurred by it on the materials and intermediate products purchased from other business firms.

Methods of Measuring National Income

Lets have a look at the following ways of measuring national income −

Product Approach

In product approach, national income is measured as a flow of goods and services. Value of money for all final goods and services is produced in an economy during a year. Final goods are those goods which are directly consumed and not used in further production process. In our economy product approach benefits various sectors like forestry, agriculture, mining etc to estimate gross and net value.

Income Approach

In income approach, national income is measured as a flow of factor incomes. Income received by basic factors like labor, capital, land and entrepreneurship are summed up. This approach is also called as income distributed approach.

Expenditure Approach

This method is known as the final product method. In this method, national income is measured as a flow of expenditure incurred by the society in a particular year. The expenditures are classified as personal consumption expenditure, net domestic investment, government expenditure on goods and services and net foreign investment.

These three approaches to the measurement of national income yield identical results. They provide three alternative methods of measuring essentially the same magnitude.