In: Economics
1. laws of demand and supply
2. GDP
3. Keynesian theory (running a deficit or surplus)
4. Examples of fiscal policy
5. Tools of monetary policy
Laws of demand and supply describe the relationship between demand of goods and its supply. It also explains its effects on price of product. It explain how the price of any product is determined by demand and supply of that product. There are four basic laws of Demand and Supply:
2. GDP
Gross Domestic Product is defined as the total final value (Monetary value ) of all final goods and services producer within the particular geographic territory of a country during the specific time period, generally one year. Gross Domestic Product is considered an important indicator of measuring the economic growth and development of any country.
Gross domestic products includes all public, private consumption, investments, private inventories, foreign balance trade, government outlays.
GDP can be measured in three different methods:
GDP= GDP at factor cost+ Tax- Subsidies.
GDP= Real GDP- Tax + Subsidies
GDP= Consumption expenditure + Investment Expenditure + Government spending (Export – Imports).
3. Keynes’s Theory of running a deficit:
According to the Keynes theory of deficit spending , decreases in consumers spending could be balanced by equivalent increases in govt. deficit spending. According to his theory, by doing so, govt. can keep the balance of demand and also avoid the high level of unemployment. He further explained that once economy reached to its full employment, market can come back to its more moderate approach and deficit could be repaid. More government spending could causes inflation but Keynes believes that to control the inflation, government could raise taxes and evacuate extra capital from economy. According to Keynes, the major role of deficit spending is to stop the rising unemployment level during recession.
Fiscal policy is defined as the government spending and taxation policy use to maintain economic stability in economy.
Two types of Fiscal Policies used by Government and Example of fiscal policy:
There are three Main tools of Monetary Policy:
Central banks buy securities when they want expansionary monetary policy and sold securities when they want contractionary monetary policy.