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The macro-economic
environment
Study guide
*R-15:#11
2 Fiscal policy
Expenditure
Revenues=taxation+direct charges
Borrowing(PSNCR) =expenditure-revenues
*R-14:#1; R-14:#2
Functions of taxation
To raise revenues for the government
To discourage certain activities regarded as
undesirable
To cause certain products to be priced to
take into account their social costs
To redistribute income and wealth
To protect industries from foreign
competition
To provide a stabilising effect on national
income
*R-51:#1
Types of tax
Levied on expenditure
Can be regressive
Two types:
Specific tax: fixed sum per unit
Ad valorem tax: fixed percentage of the price
*R-14:#3
Activity
3 Monetary policy
Economic indicators
Monetary indicators
National income
Price
AD
AS
Equilibrium
Quantity
Price
AD
AS
Inflationary
gaps
Full
employment
Price
AD
Equilibrium
Equilibrium
AS
Deflationary
gaps
Quantity
Full
Quantity
Full
stagflation
*R-51:#2
6 Inflation
Causes of inflation
Unemployment
number of unemployed
unemployment= total workforce *100%
Rate of
Flow of workers
Consequences
Loss of output
Loss of human capital
Increasing inequality in the distribution of
income
Social costs
Increased burden of welfare payments
Causes of unemployment
Real wage
Real wages do not fall for the
unemployment labour market to clear
Short-term Frictional
Difficulty in matching
unemployment unemployed workers with
available jobs
Seasonal
Resulting from demand for
unemployment labour fluctuates in seasonal
patterns
Long-term Structural
Economic growth
Potential growth
Sustained growth
*R-15:#10
Natural resources
Technological progress
Advantages
Disadvantages
Balance of payments
Balance of payment
Current account
Trade in goods
Trade in services
Income: income from employment by overseas
firms and income from capital investments overseas
Transfer: public sector and non-government sector
payments and receipts from overseas bodies
* R-52:#6
*R-15:#6
summary
summary
summary