Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 3 views

    Economics Reviewer 2024 - Pages-1

    Uploaded by

    Mary Aileen del Fonso
    Economics

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Economics Reviewer 2024 - Pages-1

    Uploaded by

    Mary Aileen del Fonso
    3 views1 page
    Economics

    Original Title

    Economics Reviewer 2024_pages-1

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Economics

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    3 views1 page

    Economics Reviewer 2024 - Pages-1

    Uploaded by

    Mary Aileen del Fonso
    Economics

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    10.

    Society faces a short-run trade-off between inflation and unemployment


    • If there is inflation in the economy, prices of goods and services are high. To reduce the
    rate of inflation, the government using fiscal policy, will either spend less or increase tax
    rates to encourage people to spend less. If households spend less (buy less goods and
    services), business firms will receive less revenue. Lower revenue means business firms
    might lay off workers, resulting in unemployment.

    II. CIRCULAR FLOW DIAGRAM OF ECONOMIC ACTIVITY

    A household is composed of people living under one roof. It may be a single person, a married couple,
    or a group of people who are unrelated to each other. Households are the consuming units in an
    economy. Households buy and consume goods and services. Their primary objective is to maximize
    satisfaction.

    A business firm is an organization that transforms resources (inputs) into products (outputs). Firms are
    the primary producing units in a market economy. Business firms produce and sell goods and services.
    Their primary objective is to maximize profit which can be attained if they minimize their costs.

    Households and business firms interact in two types of markets – the market for goods and services
    (output market) and the market for factors of production (input market). The market for goods and
    services is the market in which goods and services are exchanged. In this market, the business firms
    supply the goods and services while the households buy them. In the market for factors of production,
    the resources used to produce products are exchanged. This includes land, labor, capital, and
    entrepreneurship. Land is a real property in which business firms build infrastructure for production.
    Labor services are work that households supply to firms for wages. Capital includes both financial and
    non-financial assets. Non-financial assets are also called capital stock – infrastructure, equipment, and
    machinery. Entrepreneurship brings the other factors together. It is the combination of vision, skills,
    ingenuity, and willingness to take risks that is needed to create and run new businesses

    In the Circular Flow Diagram, the inside flow presents the flow of inputs and goods and services. The
    outside flow presents the flow of payment. We already know that households buy and consume goods
    and services. Remember that the households also own the factors of production. They sell these inputs
    to the business firms in the market for factors of production. The firms will then use the inputs to produce
    the goods and services. The outputs will then be sold to the households in the market for goods and
    services.

    The flow of money (outside flow) starts with the households earning their income from selling the factors
    of production. The households will then spend their income to purchase the goods and services
    (spending). Their spending then becomes the firm’s revenue which will be used to pay for the factors of
    production (wages, rent, and profit). The wages, rent, and profit then become the household’s income.
    The flow will again start with the purchase of goods and services.

    Page 2 of 28

    You might also like