Functional finance is a school of economic thought that holds that the government should manage the money supply and fiscal policy so as to achieve specific economic goals. The goals of functional finance are full employment, stable prices, and economic growth. Functional finance is based on the belief that the government is the most powerful … Read more
The irrelevance proposition theorem is a theory in macroeconomics that states that changes in the money supply have no impact on real economic activity in the long run. The theory is based on the idea that prices adjust to changes in the money supply, so that the real economic activity is not affected. What are … Read more
The output gap is the difference between an economy’s potential output and its actual output. Potential output is the maximum amount of goods and services an economy can produce when all of its resources are being used efficiently. Actual output is the amount of goods and services the economy is actually producing. The output gap … Read more
Price efficiency is the efficient allocation of resources in an economy. In an efficient economy, resources are allocated in a way that maximizes economic welfare. The concept of price efficiency is often used in the context of perfect competition, where it is assumed that all firms are price takers and that there is perfect information. … Read more
The Reference Base Period is the time period used for comparison when measuring economic growth. It is used to calculate real GDP growth rates. The most common reference base period is the previous quarter. What is the reference base period for CPI? The reference base period for CPI is the year 1982-1984. What does PPI … Read more
What is a recession? A recession is a period of temporary economic decline during which trade and industrial activity are reduced, usually identified by a fall in GDP (Gross Domestic Product) growth, an increase in unemployment, and a decline in the stock market. What is an example of recession? A recession is a period of … Read more
Basket of Goods. A basket of goods is a collection of items that are used to measure changes in the cost of living. The basket of goods is used to calculate the consumer price index (CPI), which is a measure of inflation. What do you mean by CPI? The consumer price index (CPI) is a … Read more
The Capital Consumption Allowance, or CCA, is a deduction businesses can take against their income for the wear and tear on their capital equipment and buildings. The CCA is also sometimes called the ” depreciation deduction.” The CCA is important because it allows businesses to deduct the costs of maintaining their capital equipment and buildings, … Read more
The infant-industry theory is the idea that it is sometimes necessary for a government to protect young, developing industries from foreign competition through the use of tariffs or other trade barriers. The theory is based on the premise that these fledgling firms are not yet able to compete against established foreign firms and need time … Read more
Input-Output Analysis: Definition, Key Features, and Types What is input and output examples? In macroeconomics, the term “input” refers to the resources used to produce goods and services. These resources can be either physical (e.g. land, labor, capital) or human (e.g. knowledge, skills, entrepreneurship). Output, on the other hand, refers to the quantity of goods … Read more
