EconomicsNotes

  Adam Smith, and Karl Marx, both believed that labour value lies at the heart of all economic value. Commodities, goods, and services arise from the interaction of land, labour, and capital. Since Land is fixed until new land is cleared or built by workers, and since capital enhances labour and is invented by people, they both thought that the only people who added value in economic transactions were workers. This theory of labour value was qualified in the second half of the twentieth century by the elevation of entrepreneurialism as a factor of production. The enterprising businesspeople who took on risks, brought factors together, and who were rewarded with profit having been prepared to make losses, were elevated to a ‘fourth factor.’ This idea makes some sense, but also serves to undermine the idea that labour value on its own creates economic value. If labour has value, some argue that the value of time taken from a life to work should be viewed equally. This means t...

  The market system is one in which attempts to answer the basic economic problem of resource allocation in a world of scarcity by employing the price mechanism. In such a system, market price is used to allocate resources, to signal to producers and consumers what to produce and what is available, and to provide an incentive via profits and consumer surplus to sell or buy.   This means that the market will, via an ‘invisible hand’ be expected to clear the market, by selling all available goods at the prevailing price that people are willing to pay. This is contrasted with government schemes which seek to take advantage of concentrated information to make choices according to a national plan which is then imposed on producers and consumers. It has been recognised for centuries that the market system can be ‘allocatively efficient’ though it rarely is fully so.  Allocative efficiency is a state in which an economy produces goods so that the marginal cost of the producer ...

  The Economic Debate The 1970s in the West saw the emergence into policy of a debate which had been continuous but which was largely conducted amongst intellectuals and policymakers. This was the battle between the Keynesians who had defined the ‘post-war settlement’ and Monetarists who were focussed upon inflation. The consequences of this battle were to be quite serious, and pushed economics and political economy towards a kind of market-based, anti-inflation position which prevailed across the world with few exceptions by 1987-91. The basic disagreement was between those who believed that Aggregate Demand drove the economy, and that the worst problem in a real economy was unemployment, and those who believed that all policy eventually came down to how sound and trusted the money supply of a country was and could be. The former group argued that governments should spend against the economic cycle, that deficits were not a bad thing, and that the economy could be stimulated...

  GDP National Income is a metric of the flow of money in an economy represented by its goods, services, and wealth in a given period of time. It is essentially the same as National Output and National Expenditure, and is sometimes used as equivalent to Gross National Product (GNP.) In most economic discussions, GNP is adjusted twice. Firstly, economists tend to strip out net income earned abroad from GNP. This gives a figure for Gross Domestic Product. This is useful for economic studies because it focuses the analyst on what is going on within the economy. Secondly, economists usually adjust the nominal, ‘raw’ GDP figure for price changes, which leaves ‘real GDP’ as the key figure. [1] Change in Real GDP is therefore the most used and important indicator economists use. It tells the examiner about growth and allows for assumptions about the economic cycle . Real GDP tells economists about the accumulated flow of money around an economy but it does not really give an in...