Key Concepts in Macroeconomics: GDP, Unemployment, and Money
Gross Domestic Product (GDP) and Economic Health
Gross Domestic Product (GDP) is a measure of the value of all goods and services produced within a country’s borders in a given period of time, typically a year. It is used to measure the size and health of a country’s economy.
Calculating GDP: Three Approaches
GDP can be calculated in three ways:
- The Output Approach: Adding up the value of all goods and services produced in a given period.
- The Income Approach: Adding up the income generated by those goods
International Trade Theories and Global Economic Institutions
Modern Theory of International Trade
The modern theory of international trade explains why countries trade with each other and how they benefit from trade. This theory has evolved over time, incorporating new ideas and perspectives.
Key Elements
- Comparative Advantage: Countries trade based on comparative advantage, which refers to the ability to produce goods and services at a lower opportunity cost.
- Factor Endowments: Countries’ factor endowments, such as labor, capital, and natural resources, influence
Essential Financial Concepts: Taxes, Profitability, and Valuation Metrics
Taxation Systems and Legal Frameworks
Main Direct Taxes
- Personal Income Tax (PIT): Levied on an individual’s wages, salaries, and other types of income.
- Personal Wealth Tax: A tax levied on the net fair market value of a taxpayer’s assets.
- Corporate Income Tax (CIT): Business income taxes applied to corporations, partnerships, small businesses, and self-employed individuals.
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Taxes on Gifts and Inheritances (Individuals Only):
- Inheritance Tax: Tax payable on any increase of wealth obtained by reason
International Tax Policy, Capital Mobility, and Competition
National Tax Strategy and Capital Allocation
The decision on the setting of tax rates assumes strategic connotations for each country. It must assess revenues from its own fiscal measures and consider the other country’s possible response to its own choices.
The introduction of the tax levy on capital gains, being a distorting instrument, can only lead to a loss of efficiency and, therefore, a decrease in welfare.
The tax is relevant only for its ability to influence the allocation of capital between
Read MoreBusiness Structures, Corporate Integration, and Banking Fundamentals
Sole Proprietorships (Sole Trades)
A sole proprietorship is a business that is owned by one person.
Sole traders are often successful because they can offer better consumer services. Many consumers prefer to meet the owner face-to-face, and a sole trader has the advantage of being more involved with local people.
Partnerships
In a partnership, two or more people own and share the costs and risks of a business.
There are two types of partnerships: limited partnership and unlimited partnership.
In a limited
Read MoreUnderstanding Fiscal Policy: Mechanisms, Taxes, and Economic Effects
Time Lags Affecting Fiscal Policy Implementation
Fiscal policy suffers from three main lags: recognition, implementation, and impact lags. It takes time to recognize economic problems, approve policies through political processes, and for the policy to affect output, employment, and inflation. These delays can significantly reduce the effectiveness of fiscal policy.
Factors Influencing the Multiplier Effect
Factors Decreasing the Multiplier Effect
Two primary factors reduce the multiplier effect:
- High