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Macroeconomics

Progressive Tax

A progressive tax involves taxing lower-income citizens at a lower rate than higher-income citizens. As a member of a society with a progressive tax, the tax rate you are placed in is based on your income—whether you can afford to pay a certain tax level. Higher-income earners have a greater percentage of their wealth and income taxed.A…
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The Crowding Out Effect

The crowding out effect is a prominent economic theory stating that increasing public sector spending has the effect of decreasing spending in the private sector. In other words, according to this theory, government spending may not succeed in increasing aggregate demand because private sector spending decreases as a result and in proportion to…
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The Circular Flow of Income

The circular flow of income is illustrated in the circular-flow model of the economy, which is one of the most significant basic models within economics. This model shows how different units in an economy interact, breaking things down in a highly simplified manner. It shows how household consumption is a firm’s income, which pays for labor and…
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Lorenz Curve and Gini Coefficient

The distribution of Income in an economy is represented by a Lorenz Curve and the degree of income inequality is measured through the Gini Coefficient. One of the five major and common macroeconomic goals of a government is the equitable (fair) distribution of income.The Lorenz CurveThe Lorenz Curve, the actual distribution of income…
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Say’s Law

Say’s Law is short for “Say’s Law of Markets,” which states that the production of goods produces its own demand. In other words, supply creates its own demand.People are paid to create goods and/or services, and can then spend that money on other goods/services. And there’s no point in holding onto money for long periods without spending it,…
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Components of Aggregate Demand

There are four components of Aggregate Demand (AD); Consumption (C), Investment (I), Government Spending (G) and Net Exports (X-M). Aggregate Demand shows the relationship between Real GNP and the Price Level.Four Components of Aggregate Demand Any increase in any of the four components of aggregate demand leads to an increase or shift in…
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