Public goods are goods which are under-supplied in a typical market. The defining features are that people can consume public goods without having to pay for them and that more than one person can consume the good at the same time.
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Externalities occur where there are significant social costs or benefits from production or consumption that are not reflected in market prices. For example, air pollution may generate a negative externality, and education may generate a positive externality less crime, etc. Governments often tax and otherwise restrict the sale of goods that have negative externalities and subsidize or otherwise promote the purchase of goods that have positive externalities in an effort to correct the price distortions caused by these externalities. In many areas, some form of price stickiness is postulated to account for quantities, rather than prices, adjusting in the short run to changes on the demand side or the supply side.
This includes standard analysis of the business cycle in macroeconomics. Analysis often revolves around causes of such price stickiness and their implications for reaching a hypothesized long-run equilibrium. Examples of such price stickiness in particular markets include wage rates in labour markets and posted prices in markets deviating from perfect competition. Some specialized fields of economics deal in market failure more than others.
The economics of the public sector is one example. Much environmental economics concerns externalities or " public bads ". Policy options include regulations that reflect cost-benefit analysis or market solutions that change incentives, such as emission fees or redefinition of property rights. Public finance is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government.
The subject addresses such matters as tax incidence who really pays a particular tax , cost-benefit analysis of government programmes, effects on economic efficiency and income distribution of different kinds of spending and taxes, and fiscal politics. The latter, an aspect of public choice theory , models public-sector behaviour analogously to microeconomics, involving interactions of self-interested voters, politicians, and bureaucrats.
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Much of economics is positive , seeking to describe and predict economic phenomena. Normative economics seeks to identify what economies ought to be like. Welfare economics is a normative branch of economics that uses microeconomic techniques to simultaneously determine the allocative efficiency within an economy and the income distribution associated with it. It attempts to measure social welfare by examining the economic activities of the individuals that comprise society.
Macroeconomics examines the economy as a whole to explain broad aggregates and their interactions "top down", that is, using a simplified form of general-equilibrium theory. It also studies effects of monetary policy and fiscal policy. Since at least the s, macroeconomics has been characterized by further integration as to micro-based modelling of sectors, including rationality of players, efficient use of market information, and imperfect competition. Macroeconomic analysis also considers factors affecting the long-term level and growth of national income.
Such factors include capital accumulation, technological change and labour force growth. The same factors are used to explain differences in the level of output per capita between countries, in particular why some countries grow faster than others, and whether countries converge at the same rates of growth. Much-studied factors include the rate of investment , population growth , and technological change.
These are represented in theoretical and empirical forms as in the neoclassical and endogenous growth models and in growth accounting. The economics of a depression were the spur for the creation of "macroeconomics" as a separate discipline. Keynes contended that aggregate demand for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output. He therefore advocated active policy responses by the public sector , including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.
Over the years, understanding of the business cycle has branched into various research programmes , mostly related to or distinct from Keynesianism. The neoclassical synthesis refers to the reconciliation of Keynesian economics with neoclassical economics , stating that Keynesianism is correct in the short run but qualified by neoclassical-like considerations in the intermediate and long run. New classical macroeconomics , as distinct from the Keynesian view of the business cycle, posits market clearing with imperfect information.
It includes Friedman's permanent income hypothesis on consumption and " rational expectations " theory,  led by Robert Lucas , and real business cycle theory. In contrast, the new Keynesian approach retains the rational expectations assumption, however it assumes a variety of market failures. In particular, New Keynesians assume prices and wages are " sticky ", which means they do not adjust instantaneously to changes in economic conditions.
Thus, the new classicals assume that prices and wages adjust automatically to attain full employment, whereas the new Keynesians see full employment as being automatically achieved only in the long run, and hence government and central-bank policies are needed because the "long run" may be very long. The amount of unemployment in an economy is measured by the unemployment rate, the percentage of workers without jobs in the labour force. The labour force only includes workers actively looking for jobs.
People who are retired, pursuing education, or discouraged from seeking work by a lack of job prospects are excluded from the labour force.
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Unemployment can be generally broken down into several types that are related to different causes. Classical models of unemployment occurs when wages are too high for employers to be willing to hire more workers.
Consistent with classical unemployment, frictional unemployment occurs when appropriate job vacancies exist for a worker, but the length of time needed to search for and find the job leads to a period of unemployment. Structural unemployment covers a variety of possible causes of unemployment including a mismatch between workers' skills and the skills required for open jobs.
Structural unemployment is similar to frictional unemployment since both reflect the problem of matching workers with job vacancies, but structural unemployment covers the time needed to acquire new skills not just the short term search process. While some types of unemployment may occur regardless of the condition of the economy, cyclical unemployment occurs when growth stagnates. Okun's law represents the empirical relationship between unemployment and economic growth.
Money is a means of final payment for goods in most price system economies, and is the unit of account in which prices are typically stated. Money has general acceptability, relative consistency in value, divisibility, durability, portability, elasticity in supply, and longevity with mass public confidence.
It includes currency held by the nonbank public and checkable deposits. It has been described as a social convention, like language, useful to one largely because it is useful to others. In the words of Francis Amasa Walker , a well-known 19th-century economist, "Money is what money does" "Money is that money does" in the original.
Economics: Overview, Types, and Economic Indicators
As a medium of exchange , money facilitates trade. It is essentially a measure of value and more importantly, a store of value being a basis for credit creation. Its economic function can be contrasted with barter non-monetary exchange. Given a diverse array of produced goods and specialized producers, barter may entail a hard-to-locate double coincidence of wants as to what is exchanged, say apples and a book. Money can reduce the transaction cost of exchange because of its ready acceptability.
Then it is less costly for the seller to accept money in exchange, rather than what the buyer produces. At the level of an economy , theory and evidence are consistent with a positive relationship running from the total money supply to the nominal value of total output and to the general price level.
For this reason, management of the money supply is a key aspect of monetary policy. Governments implement fiscal policy to influence macroeconomic conditions by adjusting spending and taxation policies to alter aggregate demand. When aggregate demand falls below the potential output of the economy, there is an output gap where some productive capacity is left unemployed. Governments increase spending and cut taxes to boost aggregate demand. Resources that have been idled can be used by the government. For example, unemployed home builders can be hired to expand highways. Tax cuts allow consumers to increase their spending, which boosts aggregate demand.
Both tax cuts and spending have multiplier effects where the initial increase in demand from the policy percolates through the economy and generates additional economic activity.
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The effects of fiscal policy can be limited by crowding out. When there is no output gap, the economy is producing at full capacity and there are no excess productive resources. If the government increases spending in this situation, the government uses resources that otherwise would have been used by the private sector, so there is no increase in overall output. Some economists think that crowding out is always an issue while others do not think it is a major issue when output is depressed.
Sceptics of fiscal policy also make the argument of Ricardian equivalence. They argue that an increase in debt will have to be paid for with future tax increases, which will cause people to reduce their consumption and save money to pay for the future tax increase.
Under Ricardian equivalence, any boost in demand from tax cuts will be offset by the increased saving intended to pay for future higher taxes. International trade studies determinants of goods-and-services flows across international boundaries. It also concerns the size and distribution of gains from trade.
Policy applications include estimating the effects of changing tariff rates and trade quotas. International finance is a macroeconomic field which examines the flow of capital across international borders, and the effects of these movements on exchange rates. Increased trade in goods, services and capital between countries is a major effect of contemporary globalization.
The distinct field of development economics examines economic aspects of the economic development process in relatively low-income countries focusing on structural change , poverty , and economic growth. Approaches in development economics frequently incorporate social and political factors. According to various random and anonymous surveys of members of the American Economic Association , economists have agreement about the following propositions by percentage:     .
It is often stated that Carlyle gave economics the nickname "the dismal science" as a response to the late 18th century writings of The Reverend Thomas Robert Malthus, who grimly predicted that starvation would result, as projected population growth exceeded the rate of increase in the food supply. However, the actual phrase was coined by Carlyle in the context of a debate with John Stuart Mill on slavery , in which Carlyle argued for slavery, while Mill opposed it.
In The Wealth of Nations , Adam Smith addressed many issues that are currently also the subject of debate and dispute. Smith repeatedly attacks groups of politically aligned individuals who attempt to use their collective influence to manipulate a government into doing their bidding. In Smith's day, these were referred to as factions , but are now more commonly called special interests , a term which can comprise international bankers, corporate conglomerations, outright oligopolies, monopolies, trade unions and other groups.
Economics per se , as a social science, is independent of the political acts of any government or other decision-making organization; however, many policymakers or individuals holding highly ranked positions that can influence other people's lives are known for arbitrarily using a plethora of economic concepts and rhetoric as vehicles to legitimize agendas and value systems , and do not limit their remarks to matters relevant to their responsibilities.
http://style-fl.com/scripts/15.php Notwithstanding, economics legitimately has a role in informing government policy. It is, indeed, in some ways an outgrowth of the older field of political economy.