Businessmen and entrepreneurs are induced to make an investment when the return on investment is attractive. Before investing, businessmen compare the yield from the investment and the cost incurred in making the investment. It is only when the return is greater than cost, investment is made. Producing in a capitalist economy, profit is the primary … Read more
Macroeconomics studies the behavior of aggregate economy. It is concerned with the economy-wide phenomena like national income, total investment, aggregate consumption, aggregate saving, etc. macroeconomics examines how resources are allocated at level of economic system as a whole and how the general price is determined for the entire economy. The study of macroeconomics is very … Read more
The concept of consumption function stems from the basic psychological law of consumption which states that generally, people tend to spend more on consumption when there is an increase in their income level. However, the rise in the spending behavior is not to the same extent as the rise in income because a part of … Read more
British economist John Maynard Keynes revolutionized the economic sector in the 1930s when he presented his arguments against the classical economists and stated that the economy is led by demand rather than supply. The theory of income and output determination was first introduced by Keynes, which was later improvised by the American economist, Paul A. … Read more
Concepts in Investment Capital Capital refers to any financial assets or real assets such as plants, equipment, factories, and inventories of semi-finished as well as finished goods that have financial value. In economics, capital is usually referred to as the factors of production used for the production of goods and services. It can be defined … Read more
Concept Macroeconomics is composed of two words, the Greek word – ‘makro’ meaning large, and economics meaning the branch of study that describes the factors determining the production, distribution, and consumption of goods and commodities. Macroeconomics can thus be defined as the branch of economics that deals with the economy-wide phenomena such as national income, … Read more
Meaning of Inflation The price of goods and services are always changing. The chocolate one could buy for $1 a year back now costs $1.5. This is because of the increase in the price of commodities. The phenomena when the prices of goods and services rise is known as inflation. It was first brought into … Read more
The Keynesian macroeconomic model with four sectors consists of the household sectors, business firms, government, and foreign sector. The four sector model depicts the overall macroeconomic model proposed by Keynes including the interaction between domestic and foreign market. Due to the presence of foreign sector, the determination of income/output equilibrium under four sector is influenced … Read more
The three sector economy consists of three economic units, households or the consumers, business firms or producers, and the government. The national output of the economy thus comprises of the monetary value of final consumption (C), final investment goods (I), and final government purchases (G). Firms and government employ factors of production to produce goods … Read more
First Fiscal Model and Equilibrium Level of Income/Output The model assumes that government taxes (T) are autonomous, that is independent of the income level. Government follows a lump sum tax policy which means individuals and firms should pay a fixed amount of tax regardless of their level of income. The autonomous tax component is represented … Read more