Cayi Midterm Review PDF

**Gross National Product (GNP)** Gross National Product (GNP) is the total value of all finished goods and services **[produced by a country's citizens in a given financial year, irrespective of their location.]** **Purpose and Limitations** **PURPOSE** [Measure the total economic output of a co...

**Gross National Product (GNP)** Gross National Product (GNP) is the total value of all finished goods and services **[produced by a country's citizens in a given financial year, irrespective of their location.]** **Purpose and Limitations** **PURPOSE** [Measure the total economic output of a country, including the value of goods and services **[produced by its citizens and companies abroad]**](https://www.bing.com/ck/a?!&&p=8113ff5dfcd2a71fJmltdHM9MTcyODA4NjQwMCZpZ3VpZD0yZWQyMTQ5ZS04NzZiLTYwY2ItMTI0ZC0wNzBiODYzMTYxNjUmaW5zaWQ9NTgyMw&ptn=3&ver=2&hsh=3&fclid=2ed2149e-876b-60cb-124d-070b86316165&psq=the+purpose+of+GNP&u=a1aHR0cHM6Ly93d3cuZmluYW5jZXN0cmF0ZWdpc3RzLmNvbS93ZWFsdGgtbWFuYWdlbWVudC9tYWNyb2Vjb25vbWljcy9ncm9zcy1uYXRpb25hbC1wcm9kdWN0Lw&ntb=1) - [Provide information on manufacturing, savings, investments, employment, and production outputs](https://www.bing.com/ck/a?!&&p=1217d1c90e82b3bbJmltdHM9MTcyODA4NjQwMCZpZ3VpZD0yZWQyMTQ5ZS04NzZiLTYwY2ItMTI0ZC0wNzBiODYzMTYxNjUmaW5zaWQ9NTgyNg&ptn=3&ver=2&hsh=3&fclid=2ed2149e-876b-60cb-124d-070b86316165&psq=the+purpose+of+GNP&u=a1aHR0cHM6Ly9jb3Jwb3JhdGVmaW5hbmNlaW5zdGl0dXRlLmNvbS9yZXNvdXJjZXMvZWNvbm9taWNzL2dyb3NzLW5hdGlvbmFsLXByb2R1Y3QtZ25wLw&ntb=1) [Be used by **[economists to find solutions to economic issues such as poverty and inflation]**](https://www.bing.com/ck/a?!&&p=d69b1ee4273e4365JmltdHM9MTcyODA4NjQwMCZpZ3VpZD0yZWQyMTQ5ZS04NzZiLTYwY2ItMTI0ZC0wNzBiODYzMTYxNjUmaW5zaWQ9NTgyOA&ptn=3&ver=2&hsh=3&fclid=2ed2149e-876b-60cb-124d-070b86316165&psq=the+purpose+of+GNP&u=a1aHR0cHM6Ly9ieWp1cy5jb20vY29tbWVyY2UvZ3Jvc3MtbmF0aW9uYWwtcHJvZHVjdC8&ntb=1) **LIMITATIONS** **Exclusion of non-market activities** - Focus on Quantitative Aspects Only - **Environmental Impact Neglect** - **GNP vs. GDP** **GNP** **GDP** ------------------------------- --------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- **Definition:** Measures the total value of all goods and services produced by the residents of a ***country, both within its borders and abroad.*** Measures the total value of all goods and services produced ***within the borders of a country*** **Components:** Includes the production by a country\'s residents wherever they are located, ***either within the country or in foreign countries.*** ***Focuses on domestic production only***, regardless of whether the production is done by domestic or foreign residents. **Scope:** Considers the economic activity of a country\'s residents, **regardless of where they are located globally** Reflects the economic activity that occurs ***within a country\'s geographic borders.*** **Foreign Contributions:** Includes income earned by a country\'s residents abroad while ***subtracting the income earned by foreigners within the country.*** Excludes income earned by a country\'s residents abroad. **Nationality of Ownership:** Considers the nationality of ownership, emphasizing the contribution of a country\'s residents. Considers the location of production. **Comparisons:** Provides a more accurate reflection of a country\'s economic strength on the global stage. Often used for international comparisons of economic strength. - **Nominal GNP vs. Real GNP** - The nominal GNP is [ **calculated at the current price levels of the economy.**] It is typically used to compare current economies at current price levels. Real GNP also measures the total value of goods and services, but the basis is **[the price of a set base year.]** In this way, the effect of inflation is eliminated, thus real economic growth is more accurately measured - **CONSUMPTION** consumption, in economics, is the **[use of goods and services by households.]** **SAVINGS** In plain words, savings refer to the **[excess of disposable income over consumption expenditure.]** 1. **Factors of consumption** Consumption factors refer to the key elements that **[influence individuals to purchase goods and services]**. These include **price, quality, and convenience**. - - - 1. 2. The consumption function is an **[economic formula that represents the relationship between total consumption and]** **[[gross national income (GNI)](https://www.investopedia.com/terms/g/gross-national-income-gni.asp).]** The consumption function is a valuable tool for **[understanding the economic cycle and guiding economists and policymakers]** as they make key decisions about investments, as well as monetary and fiscal policy. 2. **Other concepts of consumption** 1. The equimarginal principle is an important idea in the economic subfield of managerial economics. It is otherwise known as the "equal marginal principle" or the "**[principle of maximum satisfaction]**." The equimarginal principle states that **[consumers choose combinations of various goods in order to achieve maximum total utility.]** **Limitations of Equi Marginal Principle** - - - - a. **Income and Substitution Effects ** **Income Effect** The income effect refers to the **[change in the demand for a good as a result of a change in the income of a consumer.]** When a consumer\'s income increases, their purchasing power rises, allowing them to buy more goods. **Substitution Effect** The substitution effect is the decrease in sales for a product that can be attributed to consumers **[switching to cheaper alternatives when its price rises. A]** product may lose market share for many reasons, but the substitution effect is purely a reflection of frugality. If a brand raises its price, some consumers will select a cheaper alternative.  3. **Investments, its determinants** **INVESTMENTS** - - **Revenues** - - **Costs** - **Expectations**  - - **INSTABILITY: UNEMPLOYMENT AND INFLATION** **Areas of Labor Problem** **A. Unemployment** The condition of one who is capable of working, actively seeking work, but **[unable to find any work]**. It is important to note that to be considered unemployed a person must be an active member of the labor force and in search of remunerative work. **UNEMPLOYMENT VS. UNDEREMPLOYMENT AND FULL EMPLOYMENT** **Underemployment** A condition in which [ **workers are employed in less than full-time**] or regular jobs or insufficient jobs for their training or economic needs. - A measure of employment and labor utilization in the economy that looks at how well the labor force is being used in terms of skills, experience, and availability to work. It refers to a situation in which individuals are **[forced to work in low-paying or low-skill jobs.]** **Full Employment** An economic situation in which all available labor resources are being used in the most efficient way possible. Full employment embodies the **[highest amount of skilled and unskilled labor that can be employed]** withi an economy at any given time. **CAUSES OF UNEMPLOYMENT** There are many reasons for unemployment. These include recessions, depressions, technological improvements, job outsourcing, and voluntarily leaving one job to find another. **1. Recession** - Defined as a sustained period of **[weak or negative growth in real GDP]** (output) that is accompanied by a significant rise in the unemployment rate. - With lower demand for goods and services firms start laying off workers and at the same time refrain from raising prices. So unemployment rises and inflation falls during recessions. **2. Unemployment Depression** - A type of situational depression that can occur immediately following a job loss or during a period of unemployment. Symptoms may include a depressed mood, low self-esteem, and feelings of emptiness, irritability, or frustration. **3. Technological Improvement** - This applies to particular types of worke whose skill is made redundant because of changes in methods of production, usually by substituting machines for their services. Technical progress does not necessarily lead to a rise in overall unemployment. **4. Job Outsourcing** - Job outsourcing definition is the process by which a company outsources some of its tasks to third party firms rather than hire full-time workers. **5. Voluntarily Termmination** - May refer to a variety of actions, but most commonly, it refers to an employee\'s decision to leave a job on their own accord. **TYPES OF UNEMPLOYMENT** **Frictional Unemployment** Frictional unemployment is **[temporary]** and occurs when people are **[actively seeking new jobs, such as recent graduates]** or those transitioning between positions. - Frictional unemployment is caused by the time and effort involved in finding and matching suitable jobs and workers. **Cyclical Unemployment** Cyclical unemployment [ ] fluctuates with **[economic cycles,]** increasing during recessions and decreasing during economic growth. - Understanding and addressing cyclical unemployment during economic downturns is a primary focus of economic studies and government policies. **Structural Unemployment** Structural unemployment occurs when **[technological advancements]** render certain jobs obsolete, leading to job losses. **Institutional Unemployment** Retraining workers affected by structural unemployment can be challenging and expensive, often **[leading to long periods of unemployment or early retirement.]** - **Government policies,** such as high minimum wage floors, generous social benefits programs, and restrictive occupational licensing laws. - **Labor market phenomena,** including efficiency wages and discriminatory hiring - **Labor market institutions,** such as high rates of unionization. **OTHER CAUSES OF UNEMPLOYMENT:** **Seasonal Unemployment:** This occurs due to **[fluctuations in demand for labor]** throughout the year, such as in industries like tourism or agriculture. - **Hidden Unemployment:** - This refers to individuals who are underemployed (working part-time but seeking full-time work) or discouraged workers (not actively seeking employment but would like a job). - **Minimum Wage Laws:** - A high minimum wage can lead to unemployment by forcing employers to pay more than they\'re willing to for certain jobs, resulting in job cuts. - **Labor Union Power:** - Powerful labor unions can negotiate for higher wages and benefits, which can increase costs for businesses and lead to job losses. - **Government Regulations:** - Excessive government regulations can make it more difficult and expensive for businesses to operate, potentially leading to job cuts or reduced hiring. - **Discrimination:** - Discrimination based on factors like age, race, gender, or religion can limit job opportunities for certain groups, contributing to unemployment. - **Economic Inequality:** - High levels of income inequality can create a situation where a small number of people have a disproportionate amount of wealth, while others struggle to find employment. **ECONOMIC AND NON ECONOMIC COSTS OF UNEMPLOYMENT** **The economic and social costs of unemployment include:** - Personal costs to unemployed (lost income, loss of sense of value, lower on-the-job training) - Costs to government (lost tax revenue and higher benefit spending) - Costs to society in general (social problems, alienation, lost GDP). **ECONOMIC COSTS OF UNEMPLOYMENT**  **Unemployment** is universally recognized as a bad thing. While economists and academics make convincing arguments that there is a certain natural level of unemployment that cannot be erased, elevated unemployment imposes significant costs on the individual, the society and the country. Worse yet, most of the costs are of the dead loss variety where there are no offsetting gains to the costs that everyone must bear. (Depending on how it\'s measured, the unemployment rate is open to interpretation.  1.For the **individual**, the **greatest economic cost of unemployment is lost income.** 2.For **society**, the **greatest economic cost of unemployment is the decrease in goods and services (output)** that occurs as a result of the unemployment. **Economists** call this sacrifice of output a **GDP gap** -- a **difference between actual and potential GDP.** **NONECONOMIC COSTS OF UNEMPLOYMENT** Cost of unemployment can be classified into two parts. **Economic** include **[hamper of production of goods and services on any aspect.]** **Non-economic** includes the **[personal problems of the individuals during those crucial financial periods.\ ]** Basically **emotional and psychological problem** come under the **noneconomic cost zone**. Some of the points are described in brief in the following lines. 1\. **Morale in the working population:** - An employee\'s performance is significantly influenced by their familiarity with the organization\'s culture, team dynamics, and specific work environment. A sudden change in workplace, especially due to economic factors, can lead to a decline in morale and performance. **2. Work satisfaction:** - Economic hardships can force employees to accept jobs that don\'t align with their interests or skills. This mismatch can lead to a lack of job satisfaction. **3. Mental depression to the work froce:** - Repeated failures in a career can lead to depression, which can negatively impact both the individual employee and their colleagues. **4. Not inclined to do a job after a long gap:** - Prolonged unemployment can lead to a loss of skills, decreased motivation, and a negative attitude towards work. Some individuals may even switch careers to avoid the disappointment associated with their previous field. **5. More crime for money:** - Crime rates are often influenced by factors like poverty and the desire for a luxurious lifestyle, especially among young people. **Measuring unemployment typically involves:** **1. Labor Force Surveys (LFS):** - provide the most comprehensive results. Calculates unemployment by different categories such as race and gender. This method is the most internationally comparable. - Questionnaires to determine employment status. **2. Unemployment Rates (UR):** **3. Labor Force Participation Rate (LFPR):** **4. Unemployment Duration:** - Average time individuals spend unemployed. **5. Underemployment Rates:** - measure of part-time or dissatisfied workers. **6. Discouraged Worker Index:** - tracks those no longer seeking employment. **7. GDP and Economic Indicators:** - indirect measures, like GDP growth and inflation. **Data sources:** **1. National Statistical agencies** ex. Bureau of Labor Statistics in the US **2. International organizations** ex. OECD, ILO **3. Surveys and censuses** **INADEQUACY OF WAGES** **Inadequacy\'** - **Wages** - **Inadequate wages** - - **The possible causes of inadequate wages are as follows:** **1. Inflation** - **2. Lack of skills** - **3. Too many dependents** - **TYPES OF WAGES** **1. Hourly Wage** - **2. Salary Wage** - **3. Pece rate** a piece rate is one in which employees are **[paid based on the number of units or tasks accomplished rather than the number of hours worked.]** **4. Commission** a commission is a sort of payment in which someone **[is paid a percentage of the sales or transactions they complete.]** **5. Overtime Pay** is the **[extra money paid to employees for working more than the customary number of hours in a week or day.]** **6. Bonuses** are **[additional payments or awards]** provided to employees by their employers to recognise exceptional performance, goal achievement, or contributions to the organisation's success. **7. Tips and Gratuities** are **[extra payments]** that customers can give to service personnel **[to express their gratitude for exceptional service.]** - amount that employers are required to pay their employees for their work. It serves as a baseline wage that is intended to ensure that workers receive fair compensation for their labor, covering basic living expenses and preventing the exploitation of low wage workers. **9. Living Wage** refers to the **[least amount of money an employer can offer]** to an employee. - **Living wage** is **different** from **minimum wage** because employers don\'t have to follow legal guidelines like they would if they offered minimum wage to employees. **10. Fair Wage** refers to an **[acceptable wage for employers to offer]** to their employees. It considers factors like cost of living in a particular area and typical wages for a job position. Fair wages usually act as a midway point for minimum wage and living wage. **LORENZ CURVE** - A graphical representation of income or wealth inequality. - a way of showing the distribution of income (or wealth) within an economy. - It was developed by Max O. Lorenz in 1905 for representing wealth distribution. - shows the cumulative share of income from different sections of the population. **Industrial and Labor-Management Conflict** - refers to all expressions of dissatisfaction within the employment relationship, especially those pertaining to the employment contract, and the effort bargain. - Ex. a disagreement between an employer and employees regarding the terms of employment. This could include disputes regarding conditions of employment, fringe benefits, hours of work, tenure, and wages to be negotiated during collective bargaining, or the implementation of already agreed upon terms. **Types of Industrial Disputes** - **Strike** - collective refusal by employees to work under the conditions required by the employers - **Lockouts** - the temporary closing of a place of employment or the suspension of work or the refusal by an employer to continue to employ any number of persons employed by him. - A lockout may happen for several reasons. When only part of a trade union votes to strike, the purpose of a lockout is to put pressure on a union by reducing the number of members who are able to work. - **Picketing** - workers who are on strike that stand at the entrance to their workplace. If picketing does not involve any violence, it is perfectly legal. It is basically a method of drawing public attention towards the fact that there is a dispute between the management and employees. - **Gherao** - main objective of gherao is to inflict physical and mental torture to the person being gheraced and hence this weapon disturbs the industrial peace to a great extent. - The workers may gherao the members of the management by blocking their exits and forcing them to stay inside their cabins. **Labor Union** - an organization of workers in a trade, industry, or company that is created to represent the workers in negotiations with management over issues of pay, benefits, and working conditions. - The labor union representatives negotiate with employers in a process known as **collective bargaining.** - The process results in a tentative agreement that requires a vote of the full membership to be finalized. **Collective Bargaining** - the process in which working people, through their unions, negotiate contracts with their employers to determine their terms of employment, including pay, benefits, hours, leave, job health and safety policies, ways to balance work and family, and more. - Collective bargaining is a way to solve workplace problems. It is also the best means for raising wages in America. - Indeed, through collective bargaining, working people in unions have higher wages, better benefits and safer workplaces. **Industrial Unrest** - a state of disagreement and discord between employers and employees amid signs of growing industrial unrest. **Settlement of Industrial Dispute** - The Industrial Dispute Act, 1947 came into existence in April 1947. - It was enacted to make provisions for investigations and settlement of industrial disputes and to ensure fair wages and other safeguards to the workers. **Conciliation** - one of the non binding procedures where an impartial third party known as conciliator, assists the parties to a dispute in reaching a mutually agreed settlement of dispute. **Arbitration** - is a mechanism in which a dispute is resolved by an impartial third party whose decision is final and binding upon the parties. **There are two types of arbitration:** - **Voluntary Arbitration** - In this , the parties themselves agreed on their own to use an outside party , to settle their disputes. It is non-binding in nature. - **Compulsory Arbitration** - where the parties are required to accept arbitration without any willingness in their party.It is also non-binding in nature. **Tier of Adjudication** - **Labour Courts** - **Industrial Tribunals** - **National Tribunals** **Economic Insecurity** - When individuals have highly unstable incomes and do not have the financial means to cope, they are said to be economically insecure. - Economic insecurity is thus marked by an exposure, and a vulnerability to income instability. **INFLATION: DEFINED AND MEASURED** **Inflation** - a quantitative measure of how quickly the prices of goods in an economy are increasing. - the general increase in prices or the money supply, both of which can cause the purchasing power of a currency to decline. **Deflation** - occurs when too many goods are available or when there is not enough money circulating to purchase those goods. - As a result, the price of goods and services drops. **Inflation Vs. Deflation** - Inflation occurs when the prices of goods and services rise too much, too quickly, while deflation occurs when those prices decrease. The balance between these two economic conditions, opposite sides of the same coin, is delicate, and an economy can quickly swing from one condition to the other. **CPI (Consumer Price Index)** - the most commonly used measure of inflation. - It tracks the average change over time in the prices paid by consumers for a basket of goods and services, which typically includes housing, transportation, food, and medical care. **THEORY OF INFLATION** - **Quantity Theory of Money** - inflation is determined by the money supply. - An increase in the amount of money in circulation will directly cause a proportional increase in the price of goods and services over time. - **Demand-Pull Theory** - that the cost of goods and services rises when demand is greater than the available supply. - This model of supply/demand imbalance reflects one of the most common definitions of inflation: "Too much money chasing too few goods. - **Cost-Push Theory** - rising cost of production - production---whether raw materials or wages---amid a steady flow in demand. - An increase in these "input costs" will likely decrease a manufacturer's bottom line. - To compensate, some manufacturers may decide to transfer these extra costs to the consumer by charging higher prices for the same unit of goods. - **Structural Theory** - a type of inflation that often prevails in developing countries. - It says inflation is caused by "structural" weakness in a country's capacity to produce goods or maintain an adequate flow of supply. - Poor infrastructure, outdated technologies, or inefficient supply chains can contribute to general underproductivity, creating imbalances between supply and demand. Inflation that stems from structural issues may not be easily changed by monetary policy.