Economics in Depth: Essentials & Explained Perspectives

  🎯  Objective To understand how governments use fiscal policy to influence economic activity, control inflation, reduce unemployment, and promote sustainable growth. 🧩  1. What is Fiscal Policy? Fiscal policy  refers to the use of government spending and taxation to influence the overall level of economic activity. It is a  demand-side policy , primarily aimed at influencing  aggregate demand (AD) . Managed by the  government , not the central bank (which handles monetary policy). 🏛️  2. Components of Fiscal Policy a.  Government Spending (G) Includes all expenditures by the public sector such as: Infrastructure (roads, schools, hospitals) Public salaries (teachers, police, healthcare workers) Social benefits (pensions, unemployment payments) Increasing  G  stimulates economic growth (expansionary), while decreasing  G  slows it down (contractionary). b.  Taxation (T) Taxes are the main source of government revenu...

  Inflation and Deflation Causes, Consequences, and Measurements 1. Introduction Inflation  and  deflation  are two crucial indicators of a country’s price stability and overall economic health. Inflation  refers to a  sustained increase in the general price level  of goods and services over time. Deflation  refers to a  sustained decrease in the general price level . Price stability is essential for economic growth, investment, and maintaining purchasing power. Central banks, such as the European Central Bank or the Central Bank of Turkey, closely monitor inflation and aim to keep it within a target range (e.g., 2%). 2. Understanding Inflation Definition: Inflation occurs when the general level of prices rises, meaning each unit of currency buys fewer goods and services than before. Formula for Inflation Rate: Inflation Rate = CPI t − CPI t − 1 CPI t − 1 × 100 Inflation Rate = CPI t − 1 ​ CPI t ​ − CPI t − 1 ​ ​ × 100 Where  C...

  Unemployment Types, Causes, and Costs of Unemployment 1. Introduction Unemployment  is one of the key indicators of a country’s economic health. It measures the percentage of the labor force that is willing and able to work but cannot find employment. Unemployment Rate = Number of Unemployed People Labor Force × 100 Unemployment Rate = Labor Force Number of Unemployed People ​ × 100 A moderate level of unemployment is normal in a dynamic economy, but high or prolonged unemployment indicates economic inefficiency and social problems. 2. Types of Unemployment Economists classify unemployment into several main types depending on its cause and duration. a. Frictional Unemployment Occurs when people are temporarily unemployed while changing jobs or entering the workforce. Example: A recent graduate searching for their first job. Usually short-term and unavoidable. b. Structural Unemployment Results from a mismatch between workers’...

  Measuring National Income GDP Calculation Methods: Expenditure, Income, and Production 1. Introduction National income is one of the most important indicators used to assess a country’s economic performance. It measures the total value of goods and services produced within a country over a specific period—usually a year. The most common measure of national income is  Gross Domestic Product (GDP) . There are three main methods for calculating GDP: Expenditure Approach Income Approach Production (or Output) Approach All three methods should theoretically give the same result, as they represent different perspectives of the same economic activity. 2. GDP by Expenditure Approach The  Expenditure Approach  focuses on total spending in an economy on final goods and services. It answers the question:  “Who is buying the goods and services?” The formula is: G D P = C + I + G + ( X − M ) G D P = C + I + G + ( X − M ) Where: C (Consumption):  Spending by households...