İKTİSADA GİRİŞ II - Deneme Sınavı - 22

All countries face with short term performance fluctuations in the economy instead of realizing steady and rapid growth rates. In other words, while production capacity rises sometimes, at other times it decreases. These fluctuations in the form of rises and decreases in production are known as business cycle.

We consider, in macroeconomics, not only the supply of and demand for bread in a particular market, but the supply of and demand for all goods and services produced in the economy; not only the price of bread but the average price of all products in the economy; not only the consumption of a single person or family, but the overall consumption of all the people or families in the economy; not only the investment of a single automobile factory, but investments of all businesses in the economy as a whole. Macroeconomics is not only interested in the determinants of these large scale variables, but also mutual relationships among them and the meaning of changes they display in time. In other words, macroeconomic analysis deals with how macro variables of a national economy affect each other and how they are determined when the economy tends to achieve equilibrium. The equilibrium mentioned here is naturally not regarded as the only one good’s market, rather with the national economy as a whole.

There are three basic indicators related to health of an economy, thus within the field of macroeconomics: Unemployment rate, inflation rate and output growth rate. Each government should watch these indicators carefully. On the other hand, since these indicators closely affect our daily life, a large part of the society cares about them and also policies affecting them, especially the ones for controlling the unemployment and inflation rates at reasonable levels and enhancing the volume of production. However, while lower unemployment, lower inflation and rapid production growth rates are clear targets, it is not always possible to achieve them at the same time.

Production Growth Rate: One of the basic indicators used in assessing the performance of an economy and the general economic conditions in a country is the country’s total production, more correctly the rate of change of this quantity according to the previous period. Total production is the total of all goods and services produced in an economy for a given period of time. The rise in the capacity of economy to produce goods and services is called as economic growth. On the other hand, economic growth can be defined as expansion of production possibilities of a country. In this case, economic growth can be considered as outward shift of the country’s production possibilities frontier.

Now let’s review this circular flow diagram step by step. Households work for businesses and government, and in turn, earn wages. These wages are not the only revenue which households can earn from businesses and government. In addition to wages, households can earn interest, dividend and rent income from businesses as well. On the other hand, households can earn income in the form of interest and transfer payment from government. Households spend their earnings for goods and services produced by businesses and pay taxes. Businesses obtain income by selling goods and services to households and government and spend their income by paying wage, interest and dividend to households and taxes to government. Similarly, government obtains income by collecting taxes from businesses and households and spends it by purchasing goods and services from businesses, making wage, interest and transfer payments to households. Finally, while households spend their earnings partially to buy goods and services produced by other countries (import expenditures),households of other countries buy goods and services produced by domestic businesses (export income).

Households work for businesses and government, and in turn, earn wages. These wages are not the only revenue which households can earn from businesses and government. In addition to wages, households can earn interest, dividend and rent income from businesses as well. On the other hand, households can earn income in the form of interest and transfer payment from government. Households spend their earnings for goods and services produced by businesses and pay taxes.

In GDP definition provided above, some features and technical terms should be clarified. First of all, we must avoid double counting so that the same product should not be included twice in calculation of GDP. Some goods and services, called as intermediate goods, are used to produce other goods and services in the economy. If this kind of goods and services are included into GDP, we count them twice. If all production phases of a product from manufacturing to finished product are included into national income accounts, the final total of GDP will be higher than the actual one. Therefore, it is required to find and sum up the net value added to GDP as a result of production of each businesses.

Economic agents in a country directly pay certain amount of their personal income to government as tax. This payment made according to individual’s own statement without any mediator is called direct tax. Most common example of direct taxes is income tax. The remaining part after subtracting direct taxes from personal income is called disposable income. In other words, disposable income is the final income amount which individuals can spend for their personal purposes. ( Personal income in the question is 120 and direct taxes 30, it means that 120 - 30 = 90 is the disposable income)

It became a tradition to express GDP both with current prices and constant prices. GDP value calculated using fixed prices are called the real GDP or GDP at constant prices. Real GDP value is the GDP value after eliminating the effect of price changes as explained above. Namely, while nominal GDP expressed with current prices reflects the effect of price changes, real GDP expressed with fixed prices doesn’t reflect the price changes as its expressed with the prices of base year. Therefore, if increases in GDP will be used as a wealth indicator, real value should be used since nominal values do not make much sense, especially in high inflation periods

The total of wage, interest, profit and rent earnings obtained as a result of joining the production activities is the total of revenues obtained. As we will discuss in detail later, the total of revenues obtained by production factors in a country is called the national income. For companies, since paid indirect taxes (like sales tax, value added tax, production tax) and amortization (depriciation) reserved for capital assets used in production process are also considered as cost payments, as paid indirect taxes (sales tax, value added tax, production tax etc.) and amortization (depreciation) reserved for capital assets joined to production activities are also considered as costs, adding indirect taxes and amortizations to national income will provide us with GDP.

350*(137/100)=479,5

87millionTL * (397/100) = 345,39 million TL

In the Classical model prices and wages are the main factors that explain the level of employment.

Keynesian theory states that aggregate demand is the principle factor in the determination of employment level.

Price indices are used to convert nominal figures to real ones, therefore price indices are used to indicate the average price level in the economy.

Since the production possibiblity frontier shows the efficient output quantities for an economy, outward shifting of this curve indicates production of more output meaning economic growth.

A peak period is a business cycle phase in which the economic growth rate is at maximum.

Expansionary fiscal policy means changes in fiscal policy tools to increase income. So, decreasing taxes and increasing government expenditures together raise the income level.