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CHAPTER 7 : GROWTH STRATEGY - Coggle Diagram
CHAPTER 7 : GROWTH STRATEGY
CLASSICAL THEORY AND KEYSIAN EVOLUTION
CLASSICAL THEORY
KNOWN AS LAISSEZ-FAIRE ECONOMICS
IT TRANSLATE AS TO LEAVE ALONE WHICH MEANS THAT GOVERNMENT SHOULD NOT INTERFERE IN THE ECONOMY
FAVORS LOW TAXES AND FREE TRADE
MARKET IS SELF-ADJUSTING
KEYSIAN EVOLUTION
GOVERNMENT SHOULD MANIPULATE THE ECONOMY TO REVERSE THE PERIODIC DOWNTURNS THAT TAKE PLACE IN THE MARKET
THE SOLUTION WAS TO
INCREASE
DEMAND BY
INCREASING
GOVERNMENT SPENDING AND CUTTING TAXES.
LATER KNOWN AS
FISCAL POLICY
DIFFERENCES
CLASSICAL
MARKET IS PERFECT
GOVERNMENT SPENDING IS NOT A MAJOR FORCE
CREATING LONG TERM SOLUTION
KEYNESIAN
MARKET IS IMPERFECT AND NOT SELF SUSTAINING
GOVERNMENT POLICY CAN INFLUENCE DEMAND
NOT LONG TERM
ECONOMIC GROWTH
THE ULTIMATE MACROECONOMIC
ECONOMIC GROWTH OF A COUNTRY: 4 MAIN SOURCES
HUMAN RESOURCES
NATURAL RESOURCES
CAPITAL FORMATION
TECHNOLOGICAL CHANGE AND INNOVATION
FISCAL POLICY
GOVERNMENT ADJUSTS ITS SPENDING LEVELS AND TAX RATES TO MONITOR AND INFLUENCE A NATION'S ECONOMY
EXPANSIONARY FISCAL POLICY
TAX ↓
GOVERNMENT SPENDING ↑
AGGREGATE DEMAND CURVE SHIFT TO THE RIGHT = INCREASE AD
CONTRACTIONARY FISCAL POLICY
TAX ↑
GOVERNMENT SPENDING ↓
AGGREGATE DEMAND CURVE SHIFT TO THE LEFT = DECREASE AD
MONETARY POLICY
CENTRAL BANKS MANAGE LIQUIDITY TO CREATE ECONOMIC GROWTH. LIQUIDITY IS HOW MUCH THERE IS IN THE MONEY SUPPLY
CONTRACTIONARY MONETARY POLICY
REDUCE INFLATION
INTEREST RATES ↑
SECURITIES / BONDS - SELL
ENCOURAGE PEOPLE TO MAKE SAVINGS
EXPANSIONARY MONETARY POLICY
LOWER UNEMPLOYMENT AND AVOID RECESSION
SECURITIES / BONDS - BUY
INTEREST RATES ↓
ENCOURAGE PEOPLE TO MAKE LOANS
MS ↑, DPI ↑, AD ↑, OUTPUT ↑, WORKER ↑
FEDERAL DEFICIT, SURPLUS AND THE NATIONAL DEPT
FEDERAL DEFICIT
EXPENSES > REVENUE
FEDERAL SURPLUS
REVENUE > EXPENSES
THE NATIONAL DEBT
ALSO KNOWN AS PUBLIC DEBT
WHY DOES IT MATTERS ?
INTEREST COSTS ARE GROWING RAPIDLY
KEY INVESTMENTS IN OUR FUTURE ARE AT A RISK
RISING DEBT MEANS LOWER INCOMES
LESS FLEXIBILITY TO RESPOND TO CRISES
PROTECTING THE ESSENTIAL SAFETY NET
THE SOONER WE ACT, THE EASIER THE PATH
MEASURING NATIONAL INCOME
THE TOTAL VALUE A COUNTRY'S FINAL OUTPUT OF ALL NEW GOODS AND SERVICES PRODUCED IN ONE YEAR
THE EXPENDITURE METHOD - AGGREGATE DEMAND (AD)
GDP = C + I + G + (X-M)
THE INCOME METHOD
THE SUM OF THE INCOMES EARNED THROUGH THE PRODUCTION OF GOODS AND SERVICES
WAGES AND SALARIES, PROFITS OF PRIVATE SECTOR BUSINESSES, RENT INCOME FROM THE OWNERSHIP OF LAND,
THE PRODUCT METHOD
MANUFACTURING AND CONSTRUCTION
PRIMARY (INCLUDING OIL& GAS, FARMING, FORESTRY & FISHING)
WIDE RANGE OF SERVICE-SECTOR INDUSTRIES
VALUE ADDED - THE INCREASE IN THE VALUE OF GOODS OR SERVICES AS A RESULT OF THE PRODUCTION PROCESS
DIFFICULTIES FACED IN COMPUTATION OF NATIONAL INCOME
TYPES OF GOODS AND SERVICES
PROBLEMS OF DOUBLE COUNTING
ILLEGAL ACTIVITIES
DEPRECIATION
WHY NI IMPORTANT?
ECONOMIC POLICY
ECONOMIC PLANNING
ECONOMY’S STRUCTURE
INFLATIONARY AND DEFLATIONARY GAPS
BUDGETARY POLICIES
NATIONAL EXPENDITURE
RESULT OF THE FEDERAL GOVERNMENT BORROWING MONEY TO COVER YEARS AND YEARS OF BUDGET DEFICITS