Summary of International Economics Topics 7, 8, and 9 PDF

**Summary of International Economics: Topics 7, 8, and 9** **1. Introduction to International Economics Topics** This document explores the critical aspects of international economics, covering revenue distribution, the interrelationship between consumption, savings, and investments, the role of m...

**Summary of International Economics: Topics 7, 8, and 9** **1. Introduction to International Economics Topics** This document explores the critical aspects of international economics, covering revenue distribution, the interrelationship between consumption, savings, and investments, the role of monetary markets, monetary policies, inflation, and the state\'s influence on economic activities. These themes provide a comprehensive understanding of how economies operate and adapt to challenges. **2. Revenue Distribution** **Definition and Importance**: - Revenue represents the financial foundation for expenditure and savings. - Growth in national income can be categorized as: - **Extensive growth**: Driven by increased input quantities. - **Intensive growth**: Results from improved efficiency and productivity. **Income Distribution**: - Distribution involves allocating national income among individuals or sectors. - Redistribution uses tools like taxation and subsidies to ensure equity. **Income Policies**: - Essential for economic growth and balanced income distribution. - Aim to create equitable opportunities and reduce disparities. **3. Correlations Between Income, Consumption, Savings, and Investments** **Consumption**: - Constitutes a significant component of national income (Y = C + S). - **Maynard Keynes\' Insight**: Consumption is the primary purpose of economic activity. - Patterns of consumption: - Public vs. private consumption. - Material goods vs. services. - Current vs. durable goods. **Factors Influencing Consumption**: - Direct: Income levels, expected future earnings, and risk. - Indirect: Psychological factors, market changes, and product innovations. **Savings**: - Defined as the portion of income not consumed (S = Y -- C). - Motivations include prudence, future opportunities, and independence. - Propensities: - **Average Propensity to Save (APS)**: Proportion of income saved. - **Marginal Propensity to Save (MPS)**: Fraction of additional income saved. **Investments**: - Directly influenced by savings and interest rates. - Investment drives economic growth and innovation. **4. The Role and Evolution of Money** **Nature of Money**: - Transitioned from **commodity money** (e.g., gold) to **fiat money** (currency backed by trust in central banks). **Functions**: - **Unit of Account**: Measures value consistently. - **Medium of Exchange**: Facilitates transactions efficiently. - **Store of Value**: Retains purchasing power over time. **Monetary Base**: - Encompasses physical currency and bank reserves. - Enables transactions, savings, and economic activities. **5. Monetary Policies and Inflation** **Monetary Policies**: - Aim to regulate money supply and ensure economic stability. - Tools include: - Open market operations (buying/selling government bonds). - Reserve requirements for banks. - Adjusting interest rates. **Inflation**: - A sustained rise in the general price level, eroding purchasing power. - **Types**: - **Demand-pull**: Excess demand drives prices up. - **Cost-push**: Higher production costs lead to price increases. - **Hyperinflation**: Extremely high inflation rates (e.g., Zimbabwe in the 2000s). - **Measurement**: Using Consumer Price Index (CPI). **Consequences of Inflation**: - Influences consumption, investments, and income distribution. - Creates social and economic challenges if uncontrolled. **6. State and the Economy** **Role of the State**: - Uses macroeconomic policies to stabilize the economy. - Balances growth, employment, and price stability. **Fiscal Policies**: - Govern government spending and taxation. - Includes: - Social benefits and subsidies. - Infrastructure investments. - Revenue from taxes, social contributions, and property income. **Macroeconomic Instruments**: - Budgetary policies to manage expenditures and revenues. - Tax policies to influence economic behavior and redistribution. **7. Government Budgets, Debt, and Taxation** **Taxation**: - Forms: - **Direct taxes**: Levied on income and profits. - **Indirect taxes**: Applied to goods and services (e.g., VAT). - Systems: - **Progressive**: Higher rates for higher earners. - **Regressive**: Uniform rates, impacting lower-income groups more heavily. **National Budget**: - Details expected revenues and expenditures. - Sources of revenue: - Taxes and social contributions. - Market outputs and capital transfers. **Government Debt**: - Accumulated through fiscal deficits. - Managed by issuing bonds to domestic and international markets. **Bonds**: - Represent loans from creditors to governments. - Interest rates depend on risk and repayment terms. **Debt Challenges**: - High debt levels affect credit ratings and borrowing costs. - Example: Greece's financial crisis post-2010. **8. Inflation Dynamics and State Intervention** **Inflation Types**: - **Creeping**: Low, manageable levels (\10%). - **Hyperinflation**: Extreme cases (\>50% monthly). **State Policies Against Inflation**: - Adjusting monetary supply growth to GDP. - Using fiscal measures to control demand. - Ensuring production cost stability. **Social and Economic Effects**: - Alters consumption, savings, and investment behavior. - Creates inequities and labor market distortions. **9. International Perspectives** **EU Budget Practices**: - Member states coordinate on fiscal policies. - Debt and deficit limits: - Deficit \