Macro Economics - Theories In Employment And Public Finance

WELCOME TO YOU

I heartily welcome you to read this post. these are concepts related to employment and finance (budget).

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Classical economics

The term "Classical Economics" refers to a part in economics (school of thought of economics) that originated in the late 18th and early 19th centuries. the main principles of classical economists (classism) are:

• Personal liberty
• private property
• freedom of private enterprises.

Laissez-Faire (les-ay-fair)

Classical economists believed that the role of government in economic activities should be very less that is nominal. They argued that the free play of economic forces leads to proper and full utilisation of economic resources including labour. in any circumstances the state shall not enter in the matters of economic activities and market. Laissez-faire is a policy of non-intervention in economic matters. 

Say's law of market

JB Say, A French economist introduced this law of market. It is based on the classical theory of employment. according to this law "Supply creates its own demand". When some additional or extra output is created, the factors of production which participates in production receives equal amount of income according to that output increased. (Additional demand creates the additional supply).

Market mechanism

It is a method to solve the central or key problems of an economy. It includes:

• What to produce?
• How to produce?
• whom to produce?

It analyses the demand and supply. 

Full employment

It is a situation where all individuals who are willing to work at existing wage rate are employed in a work. Full employment is a rare situation in an economy.

aggregate demand function

It is a schedule (Table, tabulation or tabular data). It shows the aggregate (Total) demand prices at different levels of employment in an economy. It is called as aggregate demand function. 

Aggregate supply function

It is a scheule which shows aggregate supply price at different levels of employment in an economy is called as aggregate supply function. Here, Aggregate refers to "Total" value.

Effective demand

Effective demand is an equilibrium point where aggregate supply and aggregate demand prices are equal. Hence, It refers to the aggregate demand is at equilibrium. 

effective demand = TD=TS.

Revenue account

It consists of current transactions. It includes the value of transactions related to exports, imports, travel expenses, insurance, investments, income, etc

Capital account

Capital account refers to the transactions of capital natures such as borrowing and lending of capital payments, purchase of shares and securities, etc. It represents the balance of payment for a country. It enables an economist to analyse about imports and exports of a country. in other words, whether a country is having more transactions related to imports or exports.

Internal debt (Domestic debt)

It is the debt which is borrowed by a government from the people and institutions/organisations within the country is called as internal debt. It is also called as domestic debt. 

external debt

It is opposite to internal debt. It is the debt which is borrowed by a government from the people and institutions/organisations of other countries (foreign countries) is called as external debt.

Wage cut policy

This policy was introduced by A.C. Pigou. It is introduced to reduce the problem of unemployment. It says that the wages of the labours should be reduced so that unemployed individuals can be employed. 

Redemption of public debt

Redemption of public debt refers to the repayment of debt (Loans) amount which is made by the government. 

Public finance

Public finance includes 3 components namely:

• Public revenue
• Public expenditure
• Public debt. 

Public revenue

The revenue received by the public is called as public revenue. There are mainly 2 sources of public revenue. They are: 

• Tax revenue
• Non tax revenue.

Tax revenue

The revenue received from public through collection of tax is called tax revenue. Both state and central governments collect taxes from the public as per the constitution. 

• Direct taxes: The taxes on income and expenditure is called direct tax. Example property tax and corporate tax etc. 
• Property tax: tax on wealth and income is called property tax. 

Indirect taxes

It is the taxes laid on goods and services example, Excise duty and service tax. 

Non tax revenue

Government receives revenue from sources other than taxes and such revenue is called as non tax revenue. They are:

• Administrative revenue: government receives revenue for certain administrative services. Example, license tax, tuition fee etc. 
• Commercial revenue

Budget

Budget refers to financial statement of the government which includes expected revenue and estimated expenditure of the government in a particular financial year.  Every year finance minister of the country introduces the budget in the parliament. 

Vote on account budget

budget for few months is called as vote on account budget. 

Types of budget

• Surplus budget
• Balance budget
• Deficit budget. 

Surplus budget

If the government revenue is more than the expenditure is called as surplus budget. 

Sb = total revenue > total expenditure. 

Balanced budget 

The government revenue is equal to the expenditure is called as balanced budget. 

Balanced budget : total revenue = total expenditure. 

Deficit budget

If the government revenue is less than government expenditure is called as deficit budget. 

Fiscal deficit 

It is the difference between total expenditure and the total revenue + the market barrowings. 

Fb = (total expenditure - total revenue) + market barrowings. 

Primary deficit

Primary deficit is the fiscal budget – interest payments. 

Pd = fd-interest payments.