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The fundamental economic problem is a scarcity of resources. Definition of efficiency Efficiency is concerned with the optimal production and distribution of these scarce resources. There are different types of efficiency 1. Productive efficiency This occurs when the maximum number of goods and services are produced with a given amount...

Definition of fiscal policy. Fiscal policy involves the government changing the levels of taxation and government spending in order to influence Aggregate Demand (AD) and the level of economic activity. AD is the total level of planned expenditure in an economy (AD = C+ I + G...

Tejvan Pettinger Readers Question: What did Keynes mean by ‘In the Long Run we are all dead’ – From ‘In the Long Run we are all dead’ For Keynes, the short run was important and due to the instability of the macro economy, government intervention may be...

Tejvan Pettinger Readers Question: What factors determine the wage that someone receives? Basic economic theory suggests that wages depend on a worker’s marginal revenue productMRP. (this is basically the value that they add to the firm which employs them.) MRP is determined by two factors: MPP – Marginal physical product...

The Harrod-Domar Growth Model: The aggregate production function—which is the main pillar of every growth theory—can take different forms, depending on the actual relationship between the factors of production (K and L) and aggregate output. The Harrod- Domar model is based on the simple fixed-coefficient pro­duction...

The natural or (equilibrium) level of unemployment is determined by calculating the level of unemployment when the labour market is in equilibrium. Diagram Showing Natural Rate of Unemployment The labour force includes everyone of working age who is either working or looking for work. The Aggregate Supply (AS)...