Excited

Today? yesterday? whatever, i started my lesson from 12pm on 31st, march and finished it at 00:45 am on 1st, April. i have never experience such a long lesson, thank you to Mr . big tummy to give me such a good opportunity to have a try. It is very fun indeed, but i would not like to try againT_T..

I had just finish my dinner? breakfast? whatever, this is my today? yesterday`s blog...good night......or good morning?

Credit crunch

Credit crunch is a reduction in avaiability of loans or a sudden tightening of the conditions required to obtain a loan from banks.

Credit crunch is often caused by inappropriate lending which results a loss for banks and financial institutions. For instance, America banks allow those have poor credit history take mortages,which they were unable to pay.Banks often lending money to and borrow money from each other, thus, a lot of these loans that people were unable to pay had sold to many banks in the UK. As the results, many banks experience losses in term of bad debts and there are less money movement between banks, which cause a shortage of avaiability of money.

this link show how it was began>>>http://www.guardian.co.uk/business/2008/aug/05/northernrock.banking

This certainly affect the average man on the street, because banks and financial institution have to increases the fees and rates on loan, credit card, mortgage and etc to cover the losses, and tightening the conditions required to obtain a loan from banks to keep the bad debts low.therefore, it is hard for people to borrow money from banks.
This results several consequences:

• A reduction in investment.
• loss on confidence
• reduce inflation
• rise unemployment rate
• increases government spending

Elasticity

First of all, elasticity is the extent which the buyers and sellers respond to a change in market conditions.There are three types of elasticity,

• price elasticity of demand
• income elasticity of demand
• cross elasticity of demand

Price elasticity of demand(PED) is the responsiveness to the quantity demanded due to a change in the price of the product.The formula is the change in demand in percentage / the change in price in percentage.

PED >1, it is elastic, which means that an increase in price will result in a reduction in demand.

PED <1,it>

PED = 0, This means that demand does not change at all when the price changes and the demand curve will be vertical .

PED = 1, infinity, an change in price will have the exactly proportional change in demand and the demand curve will be horizontal.

There are four main determinants for the PED for products.

• the closeness of subsitutes

If the the number of subsitutes increases, the more closeness to the product, and the product is likely to become price elastic.

• the expense proportional of the income

If the expense of the product only take a small proportion of the person`s income, even the price increases, there will not be much change in the number of quantity consumpted.

• Time

There is a time lag between the price increase and the reponds of the consumer. which means if the price increases, in the short time consumer are likely to purchases it despite the increase in price.Over time, consumers find out more possible subsitute, the products are more pice elastic.

• level of neccessity.

If some people think the goods or services are neccessary for them, then the products tends to be price inelastic.(tobacoo, fuel)

• peak and off-peak time

The demand tend to be price inelastic at the peak time and inelastic at the off-peak time.

Income elasticity of demand, the responsiveness to the quantity demanded when there is a change in income.YED = change in demand in percentage / change in income in percentage.

YED > 0 it is an normal goods which will increases in demand as income rise

YED <0,>Cross elasticity of demand, the respondsiveness to the demand of one product when there is a change in price of another product. XED = change in demand of product in percentage / change in price of another product.

XED > 0, the goods are substitute.(competing goods)

XED <0,the>

Exchange rate

Exchange rate is the price of one currency in terms of another currency.And most countries` exchange rate are determined by the market forces of demand and supply. Simply if demand for the currency rise, exchange rate rise whereas if the supply of the currency rise, the exchange rate fall.

When we talk about exchange rate, immediately we will link to interest rate and exports and imports.

• Interest rate.

When interest rate increases, exchange rate increases as well. It is because when interest rate increases, people tends to save more to benefit from the higher interest rates in the bank account, as same as foreigners,they want to buy pounds to open an UK bank account to gain from the high interest rate, therefore, the demand of one currency increases, thus exchange rage increases.(Diagram of increases in demand for pounds)

• Imports and exports

If exports are international competitive, the exchange rate of the country is likely to be high since the demand of pound is high and the supple of pound is low. In turn, when the exchange rate rise, SPICED, imports become cheaper and exports become more expensive. Or when the exchange rate fall, it make the exports more competitive, people tend to spend more on exports, thus is an injection to the circular flow, have a positive multiplier effect on the economy.( multiplier effect diagram).

Exchange rate are influenced by other factors as well,

• rise income at home country

Therefore, people are tend to spend more, the AD is tends to shift right wards. At the same time, people will spend more on imports, the demand for other currency in increased, it put an downward pressure on exchange rate.

• rise income at abroad.

It is just the opposite of rise income at home country.

Causes for rise in exchange rate.

• current account deficit
• trade deficit
• increases in production( imports are cheap)
• lower inflation(domestic market compete with imports)
• Slower econimic growth( AD shift inwards)

Budget deficit

Budget deficit is when total governmenr spending exceeded total tax revenue .



Causes of budget deficit:

• increasing goverment spending.

Government spending lot more mainly on health, education, transport and defence.

• weaker economy

When the economy experience deflation, people have less confidence about future or afraid that may lose their jobs, they tend to save more , thus spend less and generate less indirect tax revenue. Unemployment will rise as there is less aggregate demand for goods and services, thus less direct tax are gernerated and goverment might spend more on Job seeker`s allowances. High interest rate tends to reduce aggregate demand, since it is costly to borrow and people are more likely to save money instead of purchasing, firms would not like to invest since the interest rate is high, Again, it reduced revenue from taxation.High exchange rate, SPICED, since the imports are cheap, people are more likely to spend on imports, thus less tax revenue.

Balance of payment

Balance of payment refers to the money come in and go out of a country. One of the macroeconomic policy objectives is balance of payment equilibrium. Balance of payment contain capital account, current account, financial account and net error. It is an important measure of the relative performance of the UK in the global economy.

Current account consist

• Net trade in goods( visible trade, exporting and importing tangible products)


• Net trade in services ( exporting and importing intangible products such as Banking , finance, Air travel)


• Net investment income from abroad (British investment abroad, IPD come back to UK)


• Net transfers

Current account deficit occurs when the country`s expenditure to abroad exceeded the revenue from abroad, as the result of sales of its exports , income and current transfers from abroad is being less than imports, income and current transfer going abroad.

Causes of current account deficit:

• change in income at home and abroad.

If there is a fall in income abroad, the demand for the country`s export is likely to be reduced since people`s purchasing power is less.

• Exchange rates.

If the exchange rate is high( such as UK), the exports would expensive, the price is less competitive, the imports would be cheap. therefore, people in the country would buy more imports , and people abroad would not buy so much exports.

• Investment income.

An outflow of investment income, it occurs if the investment that the foreign residents made in the country earns more interest, profits and dividends than the investment made by the country to other country.

How to reduce current account deficit.

• devaluation



• deflation



• investment



• control income



• tariffs

Current account surplus, when a country revenue from abroad exceed the expenditure abroad.It is all opposite of current account deficit, however, there is a important note to take into account.

Current account surplus may happen when the economy is in a recession, people in the country may not want to buy many products , including imports. Therefore, the firms find that it is difficult to sell the products, they may competing more vigorously in export markets.

Some theory

Positive statement: how allocation of goods and services are actually determined, suggest other uses of economics, how distinct changes in laws and rules, other government intervention in the markets.



Normative statement :combine with positive statement, predicting the effects of change in rules, value judgment.



Equilibrium: the pressure for higher prices is exactly balanced by a pressure for lower prices, thus the current state of exchange between consumers and suppliers can be expected to persist.

( why balance of payment to called balance, i think it may because it need to persist?)

The equilibrium of demand and supply maximize the total gains from trade.

Mr.chris

I am sorry that did not turn up sociology lesson yesterday, Mr chirs. i had fever, i felt no strength the whole day. I am really sorry.

Economy of scale

This is what i learnt today:)

Economy of scale refers to the reduction in average total cost(ATC) as the business get bigger in size.

Internal economy of scale, whereas purchasing machines, materials to increase output.
External economy of scale(managerial), increase the specialised manager, move to an area where cheap labours are.
Financial economy of scale, borrowing money, take a loan.
Marketing economy of scale, by advertising and marketing.
Diseconomy of scale, the opposite of economy of scale, whereas a increase in ATC as the business get bigger in size.

A diagram about economy of scale, productive efficiency and diseconomy of scale can be drawn.

Economic growth

Economic growth refers an increase in real GDP in the short run and expansion in productive capacity in the long run(expansion in potential output diagram). economic growth is one of macroeconomic objectives,they are emphasis on stable and sustainable economic growth whereas economic would growth countinue over time without endanger the future generation`s ability to expand productive capacity.
Economic growth can be achieved by matching trend growth whereas increasing AD meets increasing AS(Macroeconomic equilibrium diagram). By doing this can avoid positive output gap ( actual productivity exceed potential productivity=> inflation) and negative output gap ( actual productivity below potential productivity=>unemployment). However, it is hard to reach in practice.Most of time, economic growth by low and stable inflation.

The benefits of economic growth:

• Better living standards
• reduce in unemployment
• reduce poverty
• better status and power of a country in international organisation.

The costs of economic growth(when economic growth is not achieved by sustainable way):

• pollution in environment.
• stressful life.( works might require higher skill)
• low quality of life.( ability to purchases car, but congestion might occur)

Consumer price index and retail price index

Consumer price index is a measure of changes in the price of a representative basket of CONSUMER goods and service. It is the main measure of inflation. That is if there is a rapid increases in CPI, high inflation would cause the economic unstable, and a reduction in purchasing power, the value of money falls.

Retail price index is used to adjusting pension and benefits to take into account of changes in inflation and frequently used in wage negotiations.It measures the average change in prices of consumer goods and services each month. If too much money chasing too few goods, RPI will increases, which leads to inflation indeed. Therefore, government might use Monetary police to correct it by rise interest rate, reduce money supply, increase exchange rate.

Is it correct? I am a bit confused with it

Inflation

Inflation is the sustain rise in price level , one of the main objectives of the macroeconomic performance is to keep low or stable inflation . There are two types of inflation, cost-push inflation and demand-pull inflation.

• Cost-push inflation caused by increases in cost of production leads to rise in price level.( A cost-push diagram can be presented here).

When the cost of raw material increases, the prices of the products are increased for producer to protect their profit.As well as when the wages of labour increased or indirect tax on goods or services increased which they pass to consumers, the price level tends to increased .

• Demand-pull inflation caused by the increases in AD ( AD shift to right)without any change in AS. A demand-pull inflation diagram can be drawn.)

When the economy is producing near the productive capacity, an increase in AD ( investment, government spending, consumer expenditure, net exports) will causes an increase in price level.For example, A fall in exchange rate, SPICED, imports expensive and export cheap, therefore, people will buy fewer imports while exports sells more, an injection to economy leads to multiplier effect(diagram) Or AD is increase more rapidly than AS( a positive output gap might be produced).

When inflation is high, unemployment is low, as supplier need to achieve high productivity to meet demands, so they might employ more workers.(Phillip's curve). However, nowadays high inflation might not reduce unemployment rate, it may because with the advanced technology supplier could use machines instead of workers.

The consequences of inflation

• Menu cost, the cost of changing price due to inflation
• A fall in value of money, each pound will buy less, the purchasing power of the money reduced.
• shoeleather cost, the extra time and effort involved in reducing money holdings.
• Administrative cost, to adjust account and negotiating with unions about wage rises.
• inflationary noise, the distortion of price signals caused by inflation, which means that the market price do not signal the relative scarcity of products value.
• random redistribution of income. inflation reduce the real interest rate( nominal interest rate - inflation rate), the borrowers gain more while lender will lose.
• lose of international competitiveness. when a country`s inflation rate is above its main competitors, the goods and services will be less competitive as more imports will be bought and less exports will be sold.
• uncertainty. people would be uncertain about how much they should spend and save, firms may be reluctant to invest.
• inflation cause inflation. The experience of inflation can lead people to behave in a way which causes inflation to continue.if people expect there will be an increasing inflation, they tend to buy more goods which rise the speed of inflation.
• Fiscal drag. people`s income dragged into a higher tax band as a result of tax brackets not being adjusted in the line with inflation.

The benefits of inflation:

Low and stable demand-pull inflation will cause economic to growth, since it bring a increase in real GDP, and firms are likely to invest to produce more output, thus unemployment rate can be reduced.

Cost-push inflation has more harmful effect to the economy than demand-pull inflation since it often accompanied with a fall in real GDP.

Deflation is the opposite of inflation, which is a fall in sustain price level. Whereas, reflation is a increase in aggregate demand only?????

Fiscal and Monetary policy (Demand-side policies) and supply-side policy are used by government to control inflation to be low and stable, thus to achieve economic growth.

Unemployment

Unemployment refers to people who are out of work but are willing and able to work.There are 7 types of unemployment.

• Cyclical, unemployment due to a lack of aggregate demand.
• Structural , due to the decline of industries and occupation due to the change in demand and supply.
• Frictional, short term unemployment when people in between jobs.
• Seasonal, vocational jobs due to a sudden demands for certain time of the year only
• Technological , people lose their jobs because of the advance of technology.
• International, the firms move to other country, because people decide to buy imports rather than domestically produced product.

The consequence of unemployment:

• Loss in tax revenue. Basically, unemployment caused the tax revenue from income or goods and services being lower than it could be.
• Lost on output. people who are willing and able to work but are unemployed, is a waste of labour resource, the actual output will be less than potential output.
• Government spending. Government have to spending more on benefit for unemployment such as job seeker`s allowance. Therefore, other sectors of government spending (health, education etc) have to reduced.
• Pressure on government spending. It is because when people are unemployment, they are more likely to suffer health problems and even crime. So government might have to increases their spending in these areas.
• Costs of unemployed. An loss in income as they got less in job seeker`s allowance than wages. Unemployment might causes family break-up and etc.
• Hysteresis. unemployment cause unemployment. The longer people are out of work, the longer for them to gain a job. They might have forgotten the skills to use for work, or left a impression to employer that he/she is not a good worker.

Supply-side policy

Supply-side policy main aim is to influence aggregate supply, achieve productive potential and help prevent inflation, decrease structural and frictional unemployment, increases a country`s tade position. Examples are following:

• Education and training.

Government investment in education and training and ecouragement for indutries to increase their training, so the occupational mobility of labour and productivity should raise, thus AS shift right wards.

• Encourage small firms

New, small firms generate employment and ideas to the market, government enourage them by charge them a lower corporation tax .

• decreases direct tax

By deduce direct tax, that is reduce the tax on income. This certainly increses AD, and as well as AS. A lower direct tax might increase incentive to workers and firms. Since their income might increases more if they work over time, and workers to enter or re-enter to labour forces, thus increase in productivity. Firms might invest more as there is a cut in corporation tax.

• National minimum wage.

This might encourage people to enter labout force.

• Reduction in unemployment benefits

A reduction in job seeker`s allowance may force some unempolyed to seek for jobs more actively and some unemployed to accept low rate of wages. By doing this, the negative output gap is reduced, it move closer to full capacity. (A negative output gap diagram can be presented)

• Reduction in trade union power.

This may incresese the efficency of labour markets and reduce the cost of employing labour, thus firms might employ more workers, as a result, output raise.

• Privatisation

Privatisation refers to the public sector tranfers to the private sector. Thus, private firms will be in the best position to make decison what to produce and keep their price at competitive prices.

• Deregulation

It is to removal of some rules , so that firms belief they will have greater freedom to make their own decisions and increase competition as new firms is easier to enter an industry. AS shift to right.

Monetary policy

Monetary policy and fiscal policy can defined as demand-side policy, both seek to influence AD. Monetary policy include the rate of interest, money supply and exchange rate.
A low interest rate tends to encourage people to save less and consume more, and companies to invest more as it is cheap to borrow. If it is high interest rate, people in foreign country tends to place more their money in UK financial institution to gain high interest in return.Therefore, the demand for pounds increases, push up the value of pound, thus rise in exchange rate. When exchange rate increases, SPICED. Imports cheap and export dear. There is a likelihood to cause current account deficit ( money leaving the country exceed money coming into the country).In turn, Monetary policy can be used to adjust the position of current account of balance of payment.

Fiscal policy

It is one of the three main government policies to achieve macroeconomic policy objectives. Fiscal policy refers to the tax and spending decisions of government. It main aims is to influence aggregate demand. Aggregate demand is made of consumer expenditure, investment, government spending and net exports. To increases AD by fiscal policy which is called reflationary, it can be done by reducing tax, or increasing government spending.
There are two types of tax, direct tax which is the tax on income and indirect tax which is tax on goods and services. Direct tax is also a progressive tax whereas tax at a higher percentage on income of the rich. Indirect tax which largely is regressive tax ( tax at a greater percentage on income of the poor) . By reducing these two types of taxation, comsumper expenditure tends to increase, as consumers might have more disposable income and buy more goods with the same amount of money in hand.
Government spending is made up of capital expenditure ( roads, hospitals), current expenditure (running of public services ), debt interest payment ( interest payment made to debts holder), transfer payment (money transfer from taxpayer to those received the benefits). By increase government spending, people might benefits from them in term of money or services and tends to have greater purchasing power, therefore, increase AD.When there is a rapid increase in AD, but aggregate supply did not increases the output at the same speed, government might use fiscal policy to reduce AD, thus prevent inflation.
When there is a budget deficit (Government spending is more than revenue of taxation), government may use fiscal policy to reduce budget deficit by reduce government spending or increase tax.

Ten questions and my answers

1. Why does a 500 pounds tuxedo rent for 90 pounds a day while a 20,000 car rents for only 40 pounds?

MY answer: The 'life' of tuxedo is much shorter than car,it is easily run out of fashion while car does not. And the posibility of people rent a tuxedo instend of buy one is very high, it is because male do not wear tuxedo frequently and it might be not 'nice' if they wear it again in next ceremony or any party. Suppliers have to wash the tuxedo when customer return it to them, thus the cost is high. If any damage on the tuxedo, people will have to buy it, it might not seen to be a problem whereas people have to buy a 20,000 pounds car, people will use it with care. In general, people would rent a car for few days, but for tuxedo it normally would be only one night.

2. why do female models earn so much more than male models?

MY answer : Simply female models sacrifice much more than male models. Sometimes, female models are required not to wear cup on the T stage. The demand of female models is much more than male models, therefore, when there is an increases in demand, and the supply cannot meets the demand, the prices go up. Femaled models need to go to spa, have cosmetics to keep their beauty,therefore, the cost is high. last, the requirement to become a female model is much higher than male models.

3. Why might retailers deliberately hammer dents into their own appliances?

MY answer:I do not understand the question.







4. Why do the keypad buttons of drive-up cash machines have Braille dots?

Answer: It is for the convience of the blind people to enter the amount of cash they want to withdraw.

5.Why are child safety seats required in cars but not in airplanes?

MY answer :The rate of accident of airplanes is much much less than cars. In the car, parents or adults might not to able to have full attentions on childs, whereas, they could pay full attentions to their child.

6. Why are whales, but not chickens, in danger of extinction?

MY answer : chickens live in the land, people had figure out how to reproduce it mutiplitly, such as million by million, if not, i am wondering how the chickens form KFC, Mcdonald are produced.Now, there is an important point to consider. Chicken have financial values while whales does not. as the results, people concerned about chicken and not whales.As we know whales live in the deep sea, it is hard for human to trace them and keep an eyes on them. The pollution in sea also threaten them, and it is hard for human to built up an giant area to feed them.

7.Why is there a light in your refrigerator but not in your freezer?

MY answer: I really dun know, because i saw my friend`s have light in both refrigerator and freezer now.

8.Why do 24-hour convenience stores have locks on their doors?

MY answer : I believe 24-hour convenience stores would close when there is a storm or heavy snow. And sometimes it is locked when there is an emergency, or lock the door just for few minutes to arrange the stocks.

9.Why are newspapers, but not soft drinks, sold in vending machines that allow customers to take more units than they paid for?

MY answer : I never heard that before, i will check out with someone and answer the question.

10. Why are brown eggs more expensive than white ones, even though the two types taste the same and have identical nutritional value?

MY answer : I think the reason might be the hens does not produce brown eggs as much as white eggs do, so the brown eggs are seen to be scarce resources, therefore, the prices would be higher.

the place where my sociology hw is

hi, Mr.chris, i had done one of my sociology hw, it is in my account but different blog. You click my photo, under My blogs, there is one called sociology, my hw is at there. :) Thank you very much for the revision packT.T...

Nonsense, "ignore me"

No new post for today=p

doing first timer=x

homeworkT.T

I wanted to write something about why there is so much homework and i cannot finish them, but then i decide i better do some homework, it is much helpful.

Demand pull inflation, which is mainly caused by an increases in aggregate demand. The factors are:

Increases in

• income
• expected income
• wealth
• population
• confidence
• goverment spending
• productivity
• forgein income

And a decreases in interest rate and exchange rate.

Cost push inflation is mainly caused by an decrease in aggregate supply. The factors are

An Increase in

• cost
• wage

And an decrease in productivity of product markets.

Ok, now i am going to learn all the diagrams>.<. Good night to everyone.

what will happen if a country printed money blindly

The result is very obvious, it will cause Inflation.



The available resources of a country is limited. There is the equal amount of money to be balanced with the amount of resources. Example, a bottle of water cost 1 pound. if too much money printed, it may cost 5 pound to buy a bottle of water.



In a short run, the production capacity of a country is fixed, a sudden amount of money flush into market will results an increases in prices of products,which is actually a decrease in the value of money. It can be understand as an increases in income caused Demand pull inflation.

Increases in prices not always cause inflation

The Phillips curve represents the relationship between the rate of inflation and the unemployment rate.
Inflation: a sustained rise in prices level.There are two types of inflation.

• Cost push inflation which is occurred when increases in the price level caused by increases in the costs of production.
• Demand pull infaltion which is occurred when increases in the price level caused by increases in aggrgate demand.

However, i want to emphasis one point that increases in price of goods and services may not cause Cost push inflation ( such as INCOME stay the same). It is because when there is an increases in certain products, when you purchases it, you will lose your ability to purchases another product since your income stay the same. Therefore, cost puch inflation will not occurre.

Cost push inflation occurres only when there is a continous rise in the general price levels due to increasing output costs. That`s a high cost of inputs lead to a fall in AS, AD remain consistent.

BUT, why i wrote about the phillips curve ?? i don`t know. T.T

Information of the requirement of university of sydney.

First of all, being an international student. ILs is required, a minimum overall score of 6.5 and each sections should above 6.0
academic requirement of 3 or 4 subjects, minimum grades of A,A,Bs. ( I think it is a pretty high requirement)
Duration of Economic and commerce 3 years; Economic 3 years ; I only list those courses i am interested.

What do company report tell us?

The company report provides an overview of the company, including a description, quick facts, stock activity summary, stock price history, financials, fundamentals, earnings estimates, analyst recommendations and statistics.Since we are studying economics, let`s focous on finance.

In the financial reports , it includes :

• sales,
• profit margin,
• growth rate,
• financial ratios,
• cash flows
• balance sheet. (a statement detailing all assets and liabilities of a business)
• Ten year performance summary

Throught these statements, we can know how is the company performing.

Chapter 5 Economics` volcab

Economic growth : in the short run, an increse in real GDP, in the long run, an increase in productive capacity.
Unemployment : a situation where people are out of work but willing and able to work.
Labour force : people who are employed and unemployed, that`s says people who are economically active.
Economically inactive : people of working age who are neither employed nor unemployed.
Deflation : a sustains falling in price level.
Balance of payment : money come in and going out of a country.
inflation rate : the percentage increase in price level over a time period.
Sustainable economic growth : economic growth that can continue over time without affecting future generations` ability to expand productive capacity.
Trend growth : the expected increas in potential output over time. it is a measure of how fast economic can grow without generating inflation.
Full employment : people who wanting and able to work can find employment at the going wage rate.

Economy is found everywhere

After reading Mica`s post "why". i start to realise that economy is found everywhere. I went to Mc with her, i was also there, when Peter asked her ,

why you does not want to go to starbucks?
and both of us answered, being a student, Mc is better choice since it is cheaper.

i should make a self-examination, being an economic student, i should be sensitive to anything related to economy. My dad told me ,

the earlier you start doing, the earlier success you get.

Come, let`s start it now.

Chapter 4 Economics` vocab

Aggregate demand : total demand of a country`s goods and services at a given price level and in a given time period.

AG = C + I + G + ( X - M )
aggregate demand = consumer expenditure + investment + government spending + ( export - import )

Consumer expenditure : spending by household on consumer products. ( clothing, food..)
investment : spending on capital goods. ( machines , office building..)
government spending : spending by central government and local government on goods and services.

Transfer payments : money transferred from one person or group to another not in return for any good or service.

Job seeker`s allowance : a benefit paid by the government to those unemployed and trying to find a job.

Trade surplus : the value of exports exceeding the value of imports.
Trade deficit : the value of imports exceeding the value of exports.

Consumer confidence : how optimistic consumers are about future economic prospects.

Average propensity to consume : the proportion of disposable income spent. It is consumer expenditure over disposable income.

Inflation : a sustained rise in the price level.

Saving : real disposable income minus spending. (real disposable income is disposable income after inflation.)
Average propensity to save : the proportion of disposable income saved. It is saving divided by disposable income.

Target saver : who save with a target figure in mind.

Dissave : spending more than disposable income.

Capacity utilisation : the extent to which firms are using their capital goods.
Corporation tax : a tax on firm`s profits.
Retained profits : profit kept by firms to finance investment.
Unit cost : average cost per unit of output.

Real GDP : GDP after inflation.
Gross Domestic Product GDP : total output of goods and services produced in an country.

Tariff : tax on imports.

Government bond : a financial asset issued by the centrel or local government means of borrowing money.

Aggregate demand : the total amount that producers in the economy are willing to supply in a given prices level in a given time period.

Privatisation : transfer of assets from the public to private sector.

Macroeconomic equilibrium : a situation when aggregate demand equals aggregate supply and real GDP is not changing.

Circular flow of income : the movement of spending and income throughout the economy.

leakage : withdrawals of possible spending from the circular flow of income.

Injection : addtions of extra spending in the circular flow of income.

Multiplier effect : the process by which any change in component of aggregate demand results a greater final change in real GDP.

Overheating : the growth in aggregate demand outstripping aggregate supply, resulting in inflation.

Output gap : the difference between an economy`s actual and potential real GDP.
A negative / positive output gap occures when potential output is above/below the actual output.
An country with positive output gap usually experience inflation.


I seriously think chapter 4 is more diffcult than the preivous.

How government intervention to correct market failure?

Generally, there are FOUR methods to deal with market failure.



Taxation

• some of the tax revenue is used to finance merit goods and public goods, such as education and health.


• indirect tax is used to discourage production of demerit goods and others services that produce negative externalities. (However, most form of indirect tax tend to be passed on, in full or in part, to consumers.)


• Polluter pays principle. green tax. where the polluter pays explicitly for the pollution caused. (it is hard to measure the exact amount of tax , as it is hard to estimate the cost of negative externality; again, the tax can be shared with consumers; the price elasticity of demand for many demerit good is inelastic; better quality information might be used to further reduce consumption.)

Subsidies

It is used to encourage production and consumption which is particularly relevant in the case of merit goods and products that generate positive externalities. Examples : rural bus subsidies, winter fuel payment for aged 60 and above. education and so on.

Regulation, standards and legal controls

eg, the use of demerit goods : restrictions on the sales of tobacco products and alcohol.

• It plays an important role in reducing many forms of environmental pollution that would otherwise have been unavoidable.

Tradable permits

It is achieving a desired environmental outcome consistent with the country`s maximum level of permitted emissions