Economics

Economics is the social science that analyzes the production distribution and consumption of goods and services ,the term economics comes from the ancient Greek oikonmia management of a house hold administration from oikos house norms custom or law hence rules of the house hold .Economics aims to explain how economics work & how economic agents interact ,economic analysis is applied throughout society in business ,finance and government ,but also in crime ,education ,the family health, law, politics ,religion, social institute ,war. and science Marshal says about economics ECONOMICS IS THE STUDY OF MANKIND IN THE ORDINARY BUSINESS OF LIFE. Robins also says ECONOMICS IS A SCIENCE WICH STUDIES HUMAN BEHAVIOUR AS A RELATIONSHIP BETWEEN ENDS AND SCARCE MEANS WICH HAVE ALTERNATIVE USES. Common distinction are drawn between various dimension of economics .the primary textbook distinction is between microeconomics ,which examines the behavior of basic elements in the economy, including individual markets and agents ,and macroeconomics which address issues affecting an entire

economy including unemployment ,inflation, interest rates economic growth ,and monetary and fiscal policy. Macroeconomics
Macroeconomics( from Greek prefix macro meaning large+ economics) is a branch of economics dealing with the performance, structure, behavior and decision making of the entire economy ,this includes a national regional ,or global economy ,Macroeconomics deals with four factors that concern a business :economic growth ,inflation, unemployment and interest rates ,these factors affected business will be affected because all business are affected. Macroeconomics studied how the large aggregate such as total employment, national product or national income of an economy and the general price level are determined; Macroeconomic is therefore a study of aggregates, besides macroeconomics explains how the productive capacity and national income of the country increase ove time in the long run.

Economic growth
Economic growth refers to an increase in total spending in the economy, It shows up as an increase in gross domestic product ,Economic growth means more sales for the average business .It means that the firm can produce more ,provide more profits to owner and employ more works Economic growth per capita
Often, the concern about economic growth focuses on the desire to improve a country's standard of living the level of goods and services that, on average, individuals purchase or otherwise gain access to. It should be noted that if population has grown along with economic production, increases in GDP do not necessarily result in an improvement in the standard of living. When the focus is on standard of living, economic growth is expressed on a per capita basis. Economic growth per capita is primarily driven by improvements in productivity also called economic efficiency Increased productivity means producing more goods and services with the same inputs of labour, capital, energy, and/or materials. For example, labour and land productivity in agriculture were increased during the Green revolution The Green Revolution of the 1940s to 1970s introduced new grain hybrids, which increased yields around the world. However, there is not necessarily a long term one-to-one relationship between improvements in productivity and improvements in average standard of living.[2] Among other factors that might prevent a long-term improvement in standard of living despite economic growth is the potential for population growth matching or outstripping productivity improvements. When increased food supplies spur population growth rather an improvement in the standard of living, people are said to be caught in the "Malthusian Trap," named for Thomas Robert Malthus the first observer to detail out this dilemma. There is considerable controversy, for example, as to whether the Green

Revolution resulted in long-term improvements in the standard of living as it was accompanied by rapid population growth creating population sizes that may be unsustainable. Economic growth can also be of interest without reference to per capita changes in standard of living. An example of this is the economic growth in England during the Industrial Revolution. Certainly, per capita increases in productivity occurred due to the replacement of hand labour by machines. However, economic growth during this period was in large part so dramatic because England's population simultaneously increased very rapidly (1700 A.D. 1860 A.D.). The two factors together, more production per worker combined with many more workers, resulted in a sixfold increase in production between 1700 and 1860. Population growth alone accounted for most of this increase.[4]

Interest Rate
The interest rate is the yearly price charged by a lender to a borrower in order for the borrower to obtain a loan. This is usually expressed as a percentage of the total amount loaned. In day to day conversation we tend to hear references to "the interest rate". This is somewhat misleading, as in an economy there are dozens if not hundreds of rates interest between borrowers and lenders. The differences in rates can be due to the duration of the loan or the perceived riskiness of the borrower.

Nominal Interest Rates vs. Real Interest Rates

Note that when people discuss interest rates, they're generally talking about nominal interest rates. A nominal variable, such as a nominal interest rate, is one where the effects of inflation have not been accounted for. Changes in the nominal interest rate often move with changes in the inflation rate, as lenders not only have to be compensated for delaying their consumption, they also must be compensated for the

fact that a dollar will not buy as much a year from now as it does today. Real interest rates are interest rates where inflation has been accounted for.

How Low Can Interest Rates Go?

Theoretically nominal interest rates could be negative, which would imply that lenders would pay borrowers for the privilege of lending money to them. In practice this is unlikely to happen, but on occasion we do see real interest rates (that is, interest rates adjusted for inflation) go below zero.

Unemployment
Unemployment is defined as by the Bureau of Labor Statistics (BLS) as people who do not have a job, have actively looked for work in the past four weeks, and are currently available for work. Also, people who were temporarily laid off and are waiting to be called back to that job are counted as unemployed. People who are jobless and have not looked for work within the past four weeks are removed from the labor force by the BLS and are no longer counted as unemployed. Most people leave the labor force when they retire, go to school, have a disability that keeps them from working, or have family responsibilities. Others may feel they can't get work, and so stop looking. The BlS calls them discouraged workers. The BLS removes them from both the unemployment statistics and the labor force. However, they are separately reported in the Employment Report. There are four kind of unemployment

1:

Frictional unemployment = The Glossary of Economics Terms

defines frictional unemployment as: "Frictional unemployment is unemployment that comes from people moving between jobs, careers, and locations." Sources of frictional unemployment include the following: 1. People entering the workforce from school. 2. People re-entering the workforce after raising children. 3. People changing unemployers due to quitting or being fired (for reasons beyond structural ones). 4. People changing careers due to changing interests.

5. People moving to a new city (for non-structural reasons) and being unemployed
when they arrive.

2: Structural

unemployment: Structural unemployment is a unemployment that comes from there being an absence of demand for the workers that are available." There are two major reasons that cause an absence of demand for workers in a particular industry: 1. Changes in Technology: As personal computers replaced typewriters, typewriter factories shut down. Workers in typewriter factories because unemployed and had to find other industies to be employed in. 2. Changes in Tastes: If bagpipes become unpopular, bagpipe companies will go bankrupt and their workers will be unemployed.

3. Cyclical unemployment: Cyclical unemployment occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. So when GDP growth is small (or negative) unemployment is high. It is unemployment due to deficiency of effective demand . it is also called cyclical Keynesian unemployment .Advanced capitalist countries have been suffering from time to time from this type of unemployment .This type of unemployment greatly increase during periods of recession or depression .science recession or depression is one phase of the business cycle that generally occur in the industrialized developed economics this type unemployment is called cyclical unemployment .this type of unemployment is due to the fact the total effective demand of the community is not sufficient to absorb the entire production of goods that can be produce with the available stock of capital in a private enterprise economic production taken in response to the profit motive

4. Seasonal

unemployment: Seasonal unemployment is unemployment

due to changes in the season - such as a lack of demand for department store Santa Clauses in January. Seasonal unemployment is a form of structural unemployment, as the structure of the economy changes from month to month.

INFLATION :
Inflation is an increase in the price of a basket of goods and services that is representative of the economy as a whole. A similar definition of inflation can be found in Economics by Parkin and Bade: Inflation is an upward movement in the average level of prices. Its opposite is deflation a downward movement in the average level of prices. The boundary between inflation and deflation is price stability.

The Link Between Inflation and Money

Because inflation is a rise in the general level of prices, it is intrinsically linked to money, as captured by the often heard refrain "Inflation is too many dollars chasing too few goods". To understand how this works, imagine a world that only has two commodities: Oranges picked from orange trees, and paper money printed by the government. In a year where there is a drought and oranges are scarce, we'd expect to see the price of oranges rise, as there will be quite a few dollars chasing very few oranges. Conversely, if there's a record crop or oranges, we'd expect to see the price of oranges fall, as orange sellers will need to reduce their prices in order to clear their inventory. These scenarios are inflation and deflation, respectively, though in the real world inflation and deflation are changes in the average price of all goods and services, not just one.

GNP Definition: The Gross National Product (GNP) is the value of all the goods and
services produced in an economy, plus the value of the goods and services imported, less the goods and services exported. Gross National Product (GNP) is the market value of all products and services produced in one year by labor and property supplied by the residents of a country. Unlike Gross Domestic Product (GDP), which defines

production based on the geographical location of production, GNP allocates production based on ownership.
GNP vs. GDP
Gross National Product (GNP) is often contrasted with Gross Domestic Product (GDP). While GNP measures the output generated by a country's enterprises - whether

physically located domestically or abroad - GDP measures the total output produced within a country's borders - whether produced by that country's own firms or not. When a country's capital or labour resources are employed outside its borders, or when a foreign firm is operating in its territory, GDP and GNP can produce different measures of total output. In 2009 for instance, the United States estimated its GDP at $14.119 trillion, and its GNP at $14.265 trillion.[2] The GNP per capita for last fiscal year (2008) was $599. It is expected to increase at 6% this year to $635

WHAT IS GDP? # The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year. Measuring GDP is complicated (which is why we leave it to the economists), but at its most basic, the calculation can be done in one of two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total.

The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports. As one can imagine, economic production and growth, what GDP represents, has a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labor to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It's not hard to understand why: a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.

WHY IT IS USED FOR? # The major reason for this is that there is no better way to measure a country's economic health. Try to think of some other way to measure this and think of the problems

# Major advantage of GDP is that it is simple and convenient to measure. In addition being one of the earliest measure of economic activity to be developed, it is widely used, making it the most commonly available measure of economic activity. Further, it is very simple to ascertain with no subjective or judgemental elements. Further, other measures that may be used to replace GDP are also not free of their own limitations. Finally it is the starting point for determining economic activities in terms of many other improved measures of economic activity and well being.

INTREGALS PARTS OF GDP? # The income, expenditure and output measures of gross domestic product (GDP) are produced as part of the UK National Accounts. They measure the total income of all economic agents in the UK along with their expenditure and values and volumes of output (or production). HOW GDP CHANGES? # The Gross Domestic Product measures the value of economic activity within a country. Strictly defined, GDP is the sum of the market values, or prices, of all final goods and services produced in an economy during a period of time. There are, however, three important distinctions within this seemingly simple definition: 1. GDP is a number that expresses the worth of the output of a country in

local currency.

2. GDP tries to capture all final goods and services as long as they are produced within the country, thereby assuring that the final monetary value of everything that is created in a country is represented in the GDP. 3. GDP is calculated for a specific period of time, usually a year or a quarter of a year. 4. GDP tries to capture all final goods and services as long as they are produced within the country, thereby assuring that the final monetary value of everything that is created in a country is represented in the GDP. 5. GDP is calculated for a specific period of time, usually a year or a quarter of a year.

Monetary policy
Changing the money supply to change interest rates directly thus influencing inflation, growth and unemployment these policies are called monetary policy. Keynes thinking led to a revolution in public policy. his models showed how government could intervene to promote economic growth, reduce unemployment, control inflation, and adjust interest rates, after world war 11, most governments established policies to do just that. In the United States the government agency that implements economic policy is the Federal Reserve board often called the fed.

The transmission machanism Two steps in the transmission mechanism the process by which changes in monetary policy affect aggregate demand are essential. The first is that an increase in real balances generates a portfolio disequilibrium that is at the prevailing interest rate and level of income, people are holding more money than they want. This causes portfolio holders to attempt to reduce their money holding by buying other assets, thereby changing asset price and yields. In other words, the change in the money supply changes interest rats. the second stage of the transmission process occurs when the change in interest rates affects aggregate demand.

Fiscal policy
Raising or lowering taxes or government spending in order to influence growth unemployment and inflation those policies are called fiscal policy. In the 1960s a movement began among economists to pay more attention to a second grope of policies individual the role of money in the economy. The leader of that movement was university of Chicago economist Milton Friedman. Monetary and fiscal policies are now firmly established parts of the macroeconomic environment in which businesses operate. Managers must

learn to anticipate the monetary and fiscal policies government will use. This will let them prepare for possible periods of rapid growth, recessions, inflation and changes in interest rates