What is ''production stability''?
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Production stability is to reduce the periodic fluctuations in GDP and maintaining economic growth rate close to the long-term average.
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Production stability is to reduce the periodic fluctuations in GDP and maintaining economic growth rate close to the long-term average.
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The two aims are complementary because they have close interactions with each other. According to the so-called divine coincidence in economics literature, output stability is provided automatically in an economy where price stability is provided.
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The economic policy is influential on aggregate demand, as it is contractionary or expansionary.
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First of all we assume that the AS curve does not change. Secondly, we have to pay attention to what region the economy is on the AS curve.
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Inflation is the continuous increases in general price level for a long time.
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Cost-push inflation is the inflation that occurs as a result of increase in input costs.
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Most of the economists today accept that the main factor that drives prices to increase continuously is continuously increasing money supply. This shows that whatever the initial reason to increase price level is, inflation occurs only when increasing money supply accompanies. Therefore, it is generally accepted in economics that inflation is always a monetary phenomenon.
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Demand-pull inflation is the inflation caused by aggregate demand increases.
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Stagflation is the situation in which prices increase while production decreases.
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The increase in the money supply plays an important role in the emergence of demand-pull inflation as well as the consistent inflation.
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This new emerging equilibrium position in the economy corresponds to -high government expenditures, -low investment expenditures, -higher interest rate and -increasing price level.
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International economic transactions are made in order to gain in simple terms: • Consumers gain by meeting their demands with a lower price and higher quality variety of commodities. • Producers gain by producing for a larger market with increased competition. • Investors gain by choosing the most profitable investment from all around the globe.
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Import is a commodity or a service purchased from foreign sources.
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Export is a commodity or a service sold to foreign buyers.
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General Equilibrium refers to the situation of concurrent equilibrium of the internal and external balance of an economy.
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Internal Equilibrium refers to the full employment of economy with price stability.
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External Equilibrium refers to the balance of payments equilibrium.
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General equilibrium is determined by the implementation of two economic policies: (1) expenditure-changing policies, (2) expenditure-switching policies. In other words, internal equilibrium and external equilibrium is achieved by an effective implementation of the expenditure-changing and expenditure-switching policies.
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Expenditure-changing policies are the fiscal and monetary policies which change the volume of the total expenditure.
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Expenditure-switching policies are the policies which switch the total expenditure from imported commodities to domestic commodities or vice versa.
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The common assumption of the theories is that international trade increases the welfare via specialization in the most effective production and exchange referring to exports and imports.
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Autarky is the absence of international trade.
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Production possibilities frontier (PPF) is the boundary between those combinations of commodities and services that can be produced and those that cannot.
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Consumption possibilities frontier (CPF) is also referred to budget line. Consumption possibilities frontier or the budget line describes the limits to the consumption choices of a household. In international economics, it defines the consumption choices of a country under the given relative prices.
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Mercantilists argue that the way for a country to become powerful and rich is to export more but import less. Such a policy entails a protectionist trade policy. Mercantilism acknowledged international trade as a zero-sum game. It means that with international trade a country can gain in the expense of its trade partner.
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