Economics Concepts sy bms

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Open economy and closed economy

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1. The economy having foreign economic relations involving exports and imports of goods and services, foreign investment, lending and borrowing is called open economy. Economy that is no such foreign economic relations is called closed economy. 

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Marginal efficiency of capital (MEC)

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1. marginal efficiency of capital is the rate of discount which makes the present value of the prospective yield from a capital asset equal to its supply price.

Supply price = discounted prospective yield

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Closed economy

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An economy that does not interact with other economies.

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Investment multiplier

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1.  An investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy. The larger an investment's multiplier, the more efficient it is at creating and distributing wealth throughout an economy.

2. The ratio of change in national income to the change in investment.

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GDP

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Gross Domestic Product, the total value of all goods and services produced within a country.

GDP= C+I+G+(X-M)

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GNP

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Gross National Product, the total value of all goods and services produced by a country's residents.

GNP= C+I+G+(X-M) + R-P

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Average propensity to consume

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The fraction of total income that is consumed.

APC= C/Y

It is the ratio of consumption to total income.

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Marginal propensity to consume

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1. Marginal propensity to consume is defined as the ratio of a change in consumption to change in income. The increase in consumer spending when disposable income rises.

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Prosperity

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1. Increase in output, employment, investment demand, profits, bank loans, prices, standard of living etc. shows the phase of prosperity in trade cycle.

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Trough

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Trough is the lowest point of the trade cycle. all the economic indicators show downfall. after trough the economy starts moving upwards towards steady growth path.