Economics

Economics

• Economics comes from the Greek word Oikos

and Nomos. Oikos means household, and Nomos
means management. Eventually, it was called
oikonomos, which means household
management
Importances of Economics

• To understand the society economics seeks to analyze transactions made by

the society and its members, particularly concerning on their behavior and
decision making

• Understanding of economics develops individuals to be wise voters

• Economics seeks to explain the internal operation and trade policies of

different countries.
Branches of Economics

• Microeconomics focuses on how individual consumers

and firms make decisions
• Macroeconomics studies an overall economy on both a
national and international level
Basic Economic Problems

1. What to Produce?

2. How to Produce?

3. For whom to produce?

Factors of Production

1. Land

2. Labor

3. Capital

4. Entrepreneur
Economic System

• An economic system is a means by which societies or governments

organize and distribute available resources, services, and goods
across a geographic region or country.

• An economic system encompasses many institutions, agencies,

entities, decision-making processes, and patterns of consumption
that comprise the economic structure of a given community.
Types of Economic System

1. Traditional economic system

2. Command economic system

3. Market economic system

4. Mixed system
Shortage and Scarcity

• Shortage occurs whenever quantity demanded is

greater than quantity supplied at the market price

• Scarcity occur when the demand for a good or service

is greater than the availability of the good or service
Demand and Supply

• Demand pertains to the quantity of goods or services that people

are ready to buy at a given time, price, and place.

• Supply pertains to the quantity of goods or services that firms

are ready and willing to sell at a given time, price, and place
Business Cycle

• The business cycle refers to the alternating phases of economic growth

and decline. Since the phases are recurring, they often occur in an
identifiable pattern where one phase usually follows the other

• The fluctuations are caused by parameters like GDP, production,

employment, aggregate demand, real income, and consumer spending.
Business cycles are also called trade cycles or economic cycles
Phases of Business Cycle
Inflation

• Inflation is the rate of increase in prices over a given

period of time. Inflation is typically a broad measure,
such as the overall increase in prices or the increase
in the cost of living in a country
Unemployment

Unemployment is a term referring to individuals who

are employable and actively seeking a job but are
unable to find a job. Included in this group are those
people in the workforce who are working but do not
have an appropriate job.
Types of Unemployment

1. Demand Deficient Unemployment

2. Frictional Unemployment
3. Structural unemployment

4. Voluntary unemployment
Economic Policy

• Economic policy covers a wide range of

measures which governments use to manage
their economy. These include monetary
policy and fiscal policy
 Goals of Economic Policy.

1. Economic growth: Economic growth means that the incomes of all consumers
and firms (after accounting for inflation) are increasing over time.

2. Full employment: The goal of full employment is that every member of the
labor force who wants to work is able to find work.

3. Price stability: The goal of price stability is to prevent increases in the general
price level known as inflation, as well as decreases in the general price level
known as deflation
Government Expending

Government spending refers to money spent by the

public sector on the acquisition of goods and
provision of services such as education,
healthcare, social protection, and defense.
 Fiscal and Monetary Policy

• Fiscal policy refers to the use of government spending and tax

policies to influence economic conditions, especially
macroeconomic conditions. These include aggregate demand for
goods and services, employment, inflation, and economic growth.

• Monetary policy is the control of the quantity of money available

in an economy and the channels by which new money is supplied
 Component of Fiscal Policy

Taxation – The most important generating measure of the government

Government Borrowing – Borrowing play a central role in the fiscal policy

in the government due to deficiency of its local and national tax collection.

Government Expending – The spending system is the government fiscal arm

producing, allocating, and distributing social goods and services.
 Goals of Monetary Policy

• Inflation - Monetary policy is used to target a high level of inflation and reduce the
level of money circulating in the economy.

• Unemployment - policy decreases unemployment as a higher money supply and

attractive interest rates stimulate business activities and expansion of the job
market.

• Exchange Rates - The exchange rates between domestic and foreign currencies can
be affected by monetary policy. With an increase in the money supply, the domestic
currency becomes cheaper than its foreign exchange.
National Budget

• Budgeting is the process of estimating revenue and expenses

during a specific period of time.

• A national budget is the budget of a country. The government

gets money from taxes and fees, and spends it on things like
national defense, infrastructure, grants for research, education,
and the arts, and social programs such as Social Security and
Medicare