Transcript for:
Government Roles in Macroeconomic Dynamics

welcome to the second part of this this syllabus in fact and um we're finally done with the microeconomics part and now we talk about the government side of Economics we talk about the decisions the government makes and everything related to just the government in this case so the next few chapters that is four five and six we're going to be looking at the decisions and the role of the government as of a whole you know what does the decisions the government has to do in order to improve the economy as a whole we already know the concepts of micro and you know how we dealt with the producers and the consumers and how the interaction between those two parties used to take place we're now having a look at just the government and how the government intervenes between the producers and the consumers in order to have an entire economy where everyone is satisfied okay so um that's kind of just the introduction of of macroeconomics right and and I believe in the start of this syllabus or in the start of this series uh we talked about how economics is split into two parts right and I'm just going to oops sorry um how it split into two parts right so we have the micro part and then we have the macro which we'll be talking um today so with the micro part here it's more of just talking about the market right just talking about you know how does goods are sold how does Demand work how does supply work when we talk about Ma macro we talk about more of um let me just remove this right we talk more about stuff as the economy as a whole so here we talk about population we talk about employment we talk about living standards we talk about foreign exchange rates so it kind of just deals with just the entire economy as a whole which involves the people who participated in micro as well so in the first chapter which is chapter 4 we're going to be having a look at the aims of the government why do we need a government what does the government do and in order to do these uh in order to fulfill these aims what does the government have to do we're going to start off this chapter by introducing with the role of the government okay so the role of the government and what exactly is this role of the government now in an economy right so when we're talking about um an economy um just get that so when we're talking about an economy we talk about the major roles right as a producer and as an employer okay now governments work locally nationally and internationally okay so they have several roles that they have to play one they have to play of course you know make the rules within their own economy and also look at stuff internationally and nationally right so the government does a lot in terms of the economy now when we talk about like producers right what are the roles for the producers for the producers their main objective is to make profit their main objective is to satisfy the consumer wants for a consumer what's the role for the consumer the role of a consumer is in order to satisfy all the needs and wants they want in an economy and now we come to the government part of this what are the roles of a government okay and the first thing that I'm going to try to introduce with this is that um a government as I said previously wants their economy to be at the best rate they can right so the governments are going to intervene in everything right it's going to manage the goods and services trades it's going to manage employment income redistribution growth of the businesses because previously in the the chapter that we talked about previously we didn't mention the government right we mentioned on how the government does give subsidies to certain firms in order for their entire economy to improve in that same way the government is involved in every part of this economy and that's actually the role of the government so there's no certain one single role but rather the government takes part in every activity that's happening in their economy okay so that's kind of the introduction of the role of the government it's in fact not just a certain type of role but in fact several roles it has Welfare Services where you know you have to give unemployment benefits you have to give Child Benefits you have to give pensions with public services right we talked about the fact that in market failure when we did talk about market failure we kind of did talk about the government right we talked about the fact that there are certain producers and consumers or certain producers that do not want to produce public goods for their consumers because they don't get any benefit and that's when again the government comes so that's another role right so we can go on and on about the different roles the government can do and therefore we now have kind of a look at these roles in a deeper point of view in the next few chapters we kind of go much more deeper into the different stuff and we talk about what the government does how the government makes decisions and based on how they economy is acting what does the government do I'm going to start off this chapter um you know further by talking about the government macroeconomic aims now in order for these government macroeconomic aims we talk about around I think there five stuff that we talk about we talk about the economic growth we talked about the uh price stability we talk about full employment we talk about balance of payment stability and we talk about income redistribution in the following videos in the following chapters we kind of deal with each one of them one at a time and I'm going to start off with the first one right the first one which is economic growth you might have heard of this um previously and I might have even mentioned it in the previous chapters but economic growth is simply when something called it's tied up with something called the G DP okay GDP means gross domestic profit that's the full form and in a certain economy um when I I usually think of it like this when I have an economy an economy is is always doing trades right an economy has a market in this market it does a lot of trades right it does a lot of movements within the trades what GDP is is simply the amount of goods and services that are produced in an economy over a period of time right so how much of this good is being produced now that begs the question why does the government care because it's not going to receive these Goods it's not going to do anything why does the government care about economic growth now a simple way to correlate this or is to link this is that more output more output okay involves more economic growth and I'm just going to I'm just going to explain this in just a moment okay so more output means more economic growth what does this mean now let's say why does this government care about the economic growth that's was the first question that I did ask and and why does it matter now if this economic growth is doing well if there is more output let's look about what happens if there is more output that means that there is more chances for employment right because I usually correlate with output and workers if I want to produce more output I can probably need more workers if I want to expand my business I probably want more workers and that means my employment is rising the next thing is that once employment Rises what happens once employment Rises the incomes rise right I'm kind of just linking everything incomes rise the person's income does rise right so as the employment increases the income increases for those certain workers because now they have jobs and once their incomes increase they were going to spend more spend more and if they spend more the government will get taxes the government will benefit from a lot of stuff but if they spend more right because of this income their living standards will also increase right because now they can actually spend living standards increase so as you can see from just a small concept of increasing the output so much is happening in the economy the employment is increasing the income is increasing and a lot of stuff is happening from just you know doing something as simple as that and that is why economic growth is one of the government's macroeconomic aims when I have a GDP when I have an economy growth a lot of stuff happens another another reason of why the government cares about output is because of profits from the firms right the profits of the firms these firms pay tax from their goods right so if I'm selling more Goods then that means I'm getting more Prof the government is getting more profit or not profit in fact the government is getting more tax which they can put back into the economy to improve the economy okay so these are all the reasons on why economic growth is important now in fact we have a chapter that's just dedicated on economic growth so if you kind of don't understand right now it's fine we're going to go deep into this we're going to look at economic growth as a whole topic just you know one at a time but for now as a quick introduction of what economic growth is this is what economic growth is Right more output is always is good for the government okay because of these following reasons and you need to think of it like this you need to think of this whole topic or any aspect of economics in a form of a chain right I've been saying it throughout the entire course that I think I should quote it okay so everything is kind of like a chain right so the employment to the income to the spending more to the living standards increases right living start increases spending more this could also mean that taxes increase taxes for government increases because taxes for government tax uh basically the government gets taxes they have more money to spend they have more money to spend they can put more into the economy so as you can see everything is related in one way or another okay when we also talked about incomes we talked about spending in consumption in just the previous topic right when when someone spends more they could save more the banks could benefit the entire economy is happy when the output is high okay so this was the first part this was economic growth right this was when we we just talk about economic growth let's look at the second a and the second a right here is something called price stability kind of self-explanatory from the the way it's kind of said price stability what does this mean when we talk about price stability and again all these topics that I'm bringing up are going to be talked about later on in more depth but these are because in this entire microeconomic or macroeconomics chapter we basically just look at the aims and we go first into what we do about these right okay if I want to improve my GDP what do I do if I want to improve my economic growth what do I do what are the factors how can I increase it what what happens when GDP is high what happens when GDP is low when we talk about price stability we introduced something called inflation and I'm sure you must have heard of this a lot of people talk about inflation but inflation is simply when there's a rise in the price of a certain good over time over a period of time so when the certain price increases over a certain period of time we say that there is inflation that has occurred and the governments don't like inflation right because inflation must be maintained throughout the year because if the price for some certain good increas is so high that I can't afford it it's going to affect the economy and again there's several reasons why if the price increases this means the purchasing power decreases right purchasing power will decrease because of course I can't afford this so purchasing power will decrease once purchase purching power decreases that will cause hardship for the poor people the business costs will increase because not a lot of people are buying these Goods everything becomes much more expensive and therefore the economy is affected so that is another economic aim or another government aim that the government must improve which is price stability so we look at it in terms of inflation and how of course the opposite of inflation we look at that as well um we look at all that in one um as a whole right so deflation inflation we'll look about we'll look at that um everything okay so this is the second part of what the government looks at first part we said was economy growth the more the outputs of the goods the government is happy so in price stability if it is stable throughout the year or if it's the prices are not Rising drastically the government is Happy okay so so far we've talked about two aims let's go to the third aim and the third aim is the most obvious one which is employment and to be more particular it's full employment which simply means that of course if everybody in my economy is employed the government is happy right why is this because first of all if there is a lot of employment the output of certain Goods will increase that means that you know um there will be more spending in the economy it's sort of what I tried to said in the first part of the chapter so it does affect or does benefit the entire economy as a whole so full employment is very important in that way and this one there's not much to talk about here of course the better the employment the better everyone is it does benefit the consumers because employment does involve consumers as well right they it doesn't uh involve consumers it does involve producers so if there's full employment then everyone is happy in that way okay so that is the third factor that is in the m in the macroeconomics aim let's look at the fourth one and the fourth one is actually the balance of payments stability okay and what does this mean balance of payment stability means we talk about the exports and the Imports okay so this is the next so as I said the government does not only look at it in terms of local stuff they look at it in terms of international so we're looking at exports Imports right we're looking at if the exports are better than the import then there's something called the Surplus if the exports is less than the Imports it's called the deficit again you don't need to understand this that much right now we will go into this quite much more deep in just a moment or in just in the next following videos we will kind of cover everything um in in that in that way okay right now is just like kind of an introduction of what exactly this government does um when we just talk about that okay so that's what we talk about the balance of payment stability and there's not much to talk about this but rather we are just saying um economies want to sell their products overseas right an economy wants to sell the products that they make locally to other countries and they want to get Goods that are cheaper from made in other countries to their country so everyone is benefiting as a whole okay and um the fifth one and the last one is the income redistribution that means that they want so I'll just write that income v um distribution so what this means is the government basically wants everybody in the economy um to have inequality of income of course that's not possible but that is the goal of the government to at least not make the poor so poor and the rich very rich right there should be an equality because if there's an equality then you can even make the decisions you know in a much better way okay so when we talk about it like that that is um what the government does so I've talked about five macroeconomic aims and throughout these chapters that you be coming up we're going to be talking about those okay um yeah and and pretty much um that's kind of it and we are going there's another part of these notes that talk about the conflict of macroeconomy games but rather we're going to look at this in just the next few chapters we're going to be looking at conflict in macroeconomics aims and I would rather introduce it in that part than now because right now you might still kind of um be new to this and you might still be kind of learning um about the different types of stuff in terms of this okay so you might be still like kind of um learning what is this what is full employment what is economic growth so I would rather introduce that a bit in the later part okay okay let's now have a look at the first policy out of the three that the government um we kind of categorize the government's decisions based on these three policies and that's how a government makes a certain decision on the economy and the first policy that we talk about is something called the fiscal policy so I'm just going to show you this and this is how it looks like the fiscal policy so let's start and let's kind of talk about what this thing is right so um when the government you know makes a decision it needs to look at certain factors and this is the first policy that the government considers okay now as a government um I have limited money I have limited time and I have opportunity cost right the most most important concept of Economics is the fact or is the topic of opportunity cost a government has opportunity cost the government needs to make decisions and for anything or for any aim that we just talked about it needs to kind of consider the fiscal policy because of course the government as a whole wants to try to improve everything right a perfect economy would be a fact or would be a government where I'm going to try to look at everything the government of course wants to improve every part of the economy but of course I can't do that because of something called opportunity cost right and we already know about this so this is not a new topic opportunity cost is everywhere everyone needs to consider opportunity cost producers consumers and even the government okay so because of that problem the government needs to kind of decide the order of importance decide um you know what to do how to do how to responsibly spend money how to responsibly uh do this do that try to improve the economy so we kind of categorize this into three policies the fiscal policy the monetary policy and the supply side policy and uh the 4.3 talks about fiscal policy then we'll talk about the monetary policy and finally supply side policy so let's start off with this first one and I can kind of summarize this entire policy with just a few words and that is just government spending I can summarize this entire policy with just that one two words government spending okay so right now it might not be clear so let's kind of uh uh explain it in a better way okay so government spends on all kinds of stuff on all goods and services not just political and social responsibility but also with the economic um responsibility and you can just see it over here okay so government spends right they spend on a lot ofu they spend on public goods they spend on Services they they they spend on you know trying to improve the economy internationally nationally in all ways okay so government spending is part of the aggregate demand in the economy okay so some stuff that a government would spend on would be of course stuff like um education they would spend on the health care they would spend on the food stuff that involves in the economy they would spend on government salaries pensions subsidies stocks a lot of stuff that the government does spend on now of course because of the fact that the government cannot do all of this as one way right a government cannot just do you know spend on education spend on Healthcare spend on food they kind of have to decide which one is the most important one right and that again is the concept of opportunity cost because opportunity cost talks about the next best alternate right I'm talking about what do I want currently and I'm going to pick that okay so I think I'm not going to explain so much on opportunity cost because you guys already know what that is right so I'm not going to waste my time just talking about opportunity cost because you already kind of know this so the point that I'm trying to say is that a government has a lot of stuff to spend right I have so much stuff to spend but I can't do everything because of the limited budget that I have okay and before even talking about uh this policy I kind of want to introduce the fact on just spending right and we're going to start by talking about why do the government need to spend why why do I have to talk about Healthcare why do I have to do education what are these reasons for the government to spend so that's kind of the first part I want to tackle and then we'll go over the policy in just a moment okay but I think as we talk about this in the back of your mind you should kind of have a hint already of what this policy means and from already what I've kind of introduced you should kind of get a background with that so what are the reasons for the government to spend and let's start off with the first one and the first one is stuff like to supply goods and services right that's the most basic one but what do I mean by that right what do I mean by just supplying goods and services when we talked about market failure and I've just mentioned this also previously in the video we talked about public goods public goods stuff like defense Street lights right stuff like roads right those are all public goods okay these public goods are not produced by anyone so who has to produce them the government has to produce them so I have to of course spend money on producing this the next thing the government spends on is Merit Goods so the government spends on Merit Goods what are Merit Goods Merit goods are hospitals Merit goods are schools Merit goods are stuff like well welfare payments benefits so the government has to spend on that as well right the fact that the government has to spend on it because that's how a country works that's how an economic works if there was no street lights then how can my country run if there are no roads how can my country run so that's when the government has to do it and of course I don't want to go deep into oh why does the government do this that we talked about that in the market economic system was that chapter 2 yeah that was chapter 2 when we talked about why we need the government we talked about it in the advantages of market economic system so I'm not going to kind of repeat myself you should already have known why we need a government in the in the in Chapter 2 on when we started talking about what are the advantages of this so those are the reasons that are government spends right because of so on so forth the next thing on why a government needs to spend is to achieve something called supply side improvements in the economy and what does supply side improvements mean now a government needs to think of it in terms of an investment okay why do I want to spend on education and and I kind of started this whole um topic on why does the government need to spend on education what do they get out of that right because the government is not getting educated other consumers are getting educated so how does it kind of benefit the government and that's where we kind of say it is a supply side Improvement what what does this mean this means that if I am spending money on Education and Training right the labor in my economy or the productivity in my economy improves it increases that means people get the necessary skills and let's link it back to the previous chapters because that's kind of how economics works right I'm kind of linking it back and if you have noticed in chapter 4 we've kind of talked about every concept that we've talked about from before we've talked about opportunity cost we've talked about market economic system systems and now we kind of are talking about productivity because when we talked about workers we talked about the fact that labor a factor of Labor is skills and the government of course wants their economy to have the required skills to do some certain thing and that's why the government will want to invest in education and give the skills to their citizens so that the entire economy is more productive so that that's another reason why a government wants to spend the next one is a government wants to spend money to reduce the negative externalities you should already know what negative externalities are Okay negative externalities I'm going to remind you we talked about this in Chapter 2 when we talked about market failure but negative externalities is simply stuff like pollution stuff where the consumers are affected and they're not directly involved in the production of anything right so for example if my house is next to a factory I am getting affected from the factory that's a negative externality so this government needs to now spend money to kind of have pollution controls kind of clean the city as a whole the government has to spend that okay because nobody's going to clean up the city the government has to kind of do that so that's another reason to why the government has to spend okay these are a few reasons onto why the government spends and I can go on and on and on and I'm kind of just trying talk about the most important ones and how we kind of are going to relate these ones with the points that we talk about later okay another reason to why a government might need to spend is because I want to subsidize Industries again we talked about this in firms was that the previous chapter we talked about firms and we talked about the fact that some firms get subsidized because it improves the economy right and I think that time I kind of vaguely um um vaguely kind of brought into to the topic of the government so here is kind of a more concise one the government wants to subsidize these firms so the products of these goods are much cheaper and it benefits everyone right because the consumers will get the profit from the government and I think I did talk about this right I talked about it in the previous chapter on why someone would want to subsidize and why the government wants to subsidize okay and the last one or the other one very important point is that the government wants to of course improve the economic growth and for that reason we want want to kind of spend money to improve the economy growth so those are some of the reasons on why the government spends okay so those are some reasons again go look at your notes you kind of have to kind of memorize all these reasons on why the government spends and the best way to tackle economics is by learning every Concept in the notes okay and if you have to force yourself to cram all of this then you kind of have to right so you do have to read through all these notes and and kind of use these videos as a way to understand those notes because you need to do in the long term do understand these notes but at the same time you need to know how to write the points because if you know the notes at the back of your head and you can kind of relate a lot of points by just knowing you know the notes okay now we kind of need to talk about the effects of government spending okay what does this mean is like how can the government spending kind of benefit everyone okay and we have so far not even talked about the fiscal policy if if you know that and we're going to come to that in just a moment and I think it's later on after I've kind of talked about everything that's finally when we start talking about this policy and the reason why you have to kind of talk about all of this first before introducing the policy is because this policy will much make will make much more sense once I introduce all of this and then talk about the policy and then you'll kind of understand everything okay so what are the effects of government spending the effects of government spending the first one is that when I spend more I'm going to a I am going to Aid the economic growth okay in one way or another right it's I'm going to help in One Way Or Another We're going to go into more details when we talk about economic growth which is kind of later on I think it's in I think it's later on in this chapter where we talk about economic growth so we'll kind of talk about this little thing kind of later but for now you need to know that when I spend more then it's going to um help in the economic growth okay again we we'll come to stuff like oh yeah you can you can improve the economic growth by spending more but then something like inflation can still occur okay we'll get on to the you know the the Deep stuff kind of later once we know what economic growth is properly once we know what inflation is properly and of course um once we start doing questions you kind of will understand how we use all these economic policies in questions which is actually what is more important than even kind of understanding the notes is how I now have the knowledge right so I've watched all the videos I have the know I have all the notes how do I apply it in the questions that's kind of the real test of economics and we're going to try our best to practice this um and get better at economics so once I have the knowledge it doesn't mean I'm done right I need to now apply that knowledge into questions into how I can relate every economic concept as one whole big uh topic and I think one way to do it is through mind maps and a lot of people find mind maps kind of useful because you're linking all those Concepts into one goal and I feel like I want to make a video where I talk about economics maybe after this series ends try to make like a mind map video where I'm covering every little part of how economics is connected to each other because economics is literally interconnected and it's like a maze that you can kind of relate from chapter one all the way to chapter six um in one way right you can you can lead your way from or opportunity cost this does this does this does this and reach yourself into foreign exchange rates or something like that okay so maybe that's in the future let's talk about that later but for now let's talk about the effects of government spending okay and we'll start off with um that so the first one is increased government spending will of course lead to higher demand in the economy which will improve economy growth again I said don't worry about this too much if you don't understand we still haven't covered what economic growth is so the syllabus is kind of designed in a in a way that I don't kind of like because we are talking about Concepts that we haven't learned but just quickly I've told you what economic growth is is just it talks about GDP so that's how it kind of relates with each other um also when I increase uh when I increase my spending the productivity increases um and we kind of talked about this in terms of um in terms of public goods in ter of when the government spends on education the productivity increases right if it's more productive in that way so we also talk about that also when I um increase government spending on stuff like welfare schemes and stuff benefits like that then that's going to reduce inequality it's going to incre increase living standards going to reduce inequality of in terms of like um the rich and the poor poor and stuff like that okay so those are the effects of the government spending okay and it's quite um straightforward Okay so we've kind of talked about government spending now we've talked about the reasons of government spending we've talked about the effects of government spending uh let's now move on to something that's very important and it's actually asked quite a lot and that is something called tax everyone hates this right from a day to day everyone hates tax uh but it's very important very important aspect and it keeps the economy from running again and again and that is something called tax so let's now introduce what tax is and it's kind of a like a subtopic of its own because there's quite a lot to talk about in tax um and there's it's a whole like topic of just talking about tax okay so let's start off by introducing what taxes are what is a tax a tax is um when you just talk about tax right tax is the is the revenue for the governments right how does the government get this money to spend from this little thing one of the sources is from this is I'm not saying is it's from all all the revenues from here one of the revenue is from here okay that is called tax and tax is a big big part of the revenue for the for the government if not the most important one okay because this is a big source for the government revenue okay and now we're going to be talking about tax okay so let's start off by by talking about tax and talking about some features about tax um and let's start off with the first most obvious one that is it is a source of government revenue okay so let's read through this one now um tax the way I'm going to approach taxes I'm kind of just going to paste the notes and read through it and if you if there's anything that's not unclear I'm going to explain it so let's start off with the first feature of tax and um another thing to before I go into this is taxes are compulsory payment made to the government it's not like you know you can have a decision into this or you know I willingly want to do this it's something that's compulsory and the government is the only way to get money because no one wants to pay the government no one wants to pay for public goods directly okay like that's the only way I think the tax has to imple you know is to be implemented by the government it's compulsory more of payment um and it's a major major source of revenue for the governments okay so let's start off with reasons on why we want tax what are the reasons for tax and let's start with the first one and that's the source of government revenue okay so if the government has to spend on public goods and services it needs money obvious right it needs money and this is funded from the economy itself and people pay taxes knowing that it's required for Collective welfare which simply means that um people give taxes because uh the government is giving back it in back to them in in another kind of way so it's a must you you kind of have to do it another reason to why taxes are there is to redistribute income okay what does this mean and how does how does this help is the governments um the governments will Ley taxes from those who earn higher incomes okay we later go on to something called types of taxes and where rich people have to pay more tax because they have higher income and they have a lot of wealth this kind of controls the equality aspect of the economic aim that we talked about above um whereby the people who have more income they kind of have to pay more taxes and and with that money it kind of uh use welfare schemes for the poor people so it's kind of like a tradeoff okay unfair but it's what the government does and um yeah uh another reason to why we need government it's to reduce consumption and production of Dem marit Goods a tax that is imposed on a certain type of good increases the price of that entire good if that makes sense right so if I have a certain good a um after tax it becomes more expensive right after tax after you put the tax it becomes quite expensive so maybe some people will stop from buying goods that are not good for you for example cigarettes and St alcohol and stuff those maybe those type of products in some countries have more tax than the other products so um you know I wouldn't want to buy now this type of tax is called excise excise excise duty a tax on a certain good is called an excise duty and we'll talk about the different types of tax in um just some time but um this is another reason to why you need tax right so the first reason government Source second reason is to redistribute income third reason is for uh consumption and production of demed goods okay and last but not least is the to manage the entire economy right because I need money right we we talked about a lot of reasons on why we need to spend money and uh for all of those stuff that we talked about above we need money and money is such an important thing for producers important thing for consumers and it's a very important thing for the government as well so that's why we kind of talk about money a lot in this um in this entire course okay so talking about money um uh you need money to manage the economy and to get this money we use something called tax Okay so that is the um that's basically tax why we need to you know give these taxes now let's look at the classification of taxes uh quickly go over the classification of taxes it's not that um it's not that kind of deep uh let's go over each tax and just talk about each tax let's start off with the first tax and the first tax is in fact Direct Tax so let's talk about uh Direct Tax okay so what is direct tax coming from its name direct taxes are simply taxes on incomes so on incomes okay so these are taxes on incomes which means that um they're again different direct taxes for example there's the income tax so that's the first basic one the next one is corporate tax because uh this also falls under Direct Tax means uh I'll go through each one of them income tax is simply the tax you get from someone's uh income from the consumer's income so once I receive the income I have to give an income tax the next one is the corporate tax the corporate tax is the tax that you do uh when with the company's profit so the company profit you have to give a certain type of tax to the government the next one is inheritance tax inheritance is simply when someone passes away and you get all those properties back inherited wealth okay when someone passes away that wealth you have to give an inheritance tax right so that is inheritance tax and then there's something called property tax these are all type of direct taxes that you have to pay so property tax is the tax that you have to give on that as well okay so those are kind of the classification of taxes um and those are the different um taxes that we have the other type of tax that we have or the other example of tax that we have we talked about this um was the excise duty tax and excise duty tax is the tax that you put on certain Goods okay um but yeah these are kind of the classification of taxes Direct Tax okay so direct tax is um is tax on income okay then there's income tax corporate tax uh inheritance tax and property tax so these are the different ta taxes um I've said tax a lot of times in this part of the video kind of sounds weird now but anyway so tax yeah so these are different types of taxes um let's look at the advantages and disadvantages of taxes because they do have advant advant ages and disadvantages for just Direct Tax um also to add more on taxes we have something called the the vat and the vat is simply um these are included in the price of the goods and services and they kind of increase the indirect taxes okay so these are direct taxes and we have indirect taxes so the indirect taxes are the ones I'm talking about right now indirect taxes are stuff like vat customs duty customs duty what that means is uh these these are the tax for importing and exporting later on we'll kind of um get why we have to tax this um when we kind of talk about importing and exporting we'll kind of understand this and you know just talk about that as a whole okay and then we have um the excise duty which we kind of already know this so excise Dy is the tax on on demerit Goods just demerit Goods the tax on that vat is tax on any type of good customs duty is tax on imports and exports and excise duty tax is tax on um on demit goods and these are the direct taxes okay so those are the yeah and quickly I'm just going to go over the advantages of direct taxes the advantages of direct taxes is high Revenue um for the government because people who pay uh of course people who have a higher income will have to pay higher taxes tax is high for that so there's higher revenue for the government um also this can kind of reduce the inequality of income that means the people with a higher income have to kind of pay more in tax and the people with less of an income have to pay less so there's kind of an equality in there's a equality in that kind of way uh the disadvantages however is that um it kind of reduces the work incentives meaning uh because there's so much tax that you kind of don't want to work which can be a disadvantage and there's also something something called tax evasion which is another disadvantage which simply is when people find loopholes to avoid tax right because they don't want to pay tax to the government they kind of find loopholes like for example cash cannot be taxed because uh you kind of have you can cannot put in in the record of cash but again we're not going to go into more of details of that because it's kind of not part of the syllabus but that's just kind of an example of tax evasion and and I'm sure you must uh know some other examples but we kind of don't need to know about that right now we just need to know that tax evasion is a disadvantage of tax that people can kind of uh misuse the the tax and not kind of pay these taxes um also it's a disadvantage in the way that um it kind of demotivates entrepreneurs I've kind of not been coping and pasting it on the screen uh and I've just been talking about it but if you want to you can pause the video right now and read through all the disadvantages um it's not quite a lot and I've kind of already explained about everything so here are the um disadvantages you can pause the screen and read it through yourself if you want to or you can look at the notes and read it whatever is fine with you how I would want you to watch these videos is kind of um keep the notes aside with you while you watch this so watch this video and then read the notes and kind of cram the notes so that you have a mixed understanding of everything right so it's kind of like school where you go to the the classroom and you um understand the topic in in in class and then you kind of uh further read um and try to understand more in that way okay so that's how you kind of need to approach it um so yeah those are the disadvantages of taxes um of direct taxes what about the indirect tax tax the advantages of indirect tax is it's cost it's cost effective because um it's it's much more simpler uh you just have to put taxes into these Goods it expands the tax base because of course you have many types of goods many people are buying these Goods so it kind of expands that way expands the tax base in that way and with the money that I have it kind of can achieve the specific aims the government has stuff like excise duty if I have an excise duty tax it's kind of going to reduce the the Demar Goods which is kind of a benefit for me uh disadvantages here we have kind of that it's inflationary which means that uh again you might not understand this because we haven't covered that topic but inflation is simply when the price of the good Rises so me adding tax to some type of good increases the price of as a whole right can cause inflation and inflation is never good okay we're going to go over inflation later on so don't worry if you kind of don't understand that right now or if youve already had the look at the syus um then you might already understand it from now okay so those are the different taxes now I just quickly want to go over two parts of taxes and that is progressive tax progressive tax and regressive tax and I kind of want to talk about this um right now so progressive tax is taxes uh that increase as income increases so if my income increases I pay more tax kind of like income tax so but this is regressive tax progressive tax sorry so progressive tax is when the income Rises I have to pay that much more I have to pay more tax with regressive tax is the taxation Falls as income as income increases so as the more income I have the less tax I have to pay this one's not kind of common um but yeah so the problem with this is the burden on the poor is much more higher than the burden on the rich people with this one the burden is much more on the poor people than the rich people okay and then we have another type of tax which is the proportional tax and the proportional tax is when the rate of Taxation is equal okay so that comes the next one is the proportional a proportional tax so proportional tax is the rate of tax is equal no matter your type of tax okay so that's proportional tax so those are the three types of taxes that we look at and that you kind of uh need to know okay um yeah tax is a big topic as you can see right we're talking about a lot of Concepts that involves with Taxation and um the kind of the last part of of of tax is um of something called qualities of a good tax system okay a good quality tax system should have equity which means it should be um justifiable it should have certainty it should be convenient it should be elastic and it should be simple right that's a good tax system okay in a quick way now again read the notes I of there's not much to talk about in this um and yeah and we've kind of already talked about the impacts of Taxation so we're going to go look at it in that way okay so that is tax that's tax as a whole and that's government spending as a whole the reason why we talked about tax is because tax is a is a way the government gets the money to spend and remember we talked about government spending in the first part of the video government spending is kind of related with tax because they come they go hand inand okay so now let's finally talk about fiscal policy kind of the topic of of this chapter was Physical policy and we kind of have not yet talked about Physical policy which is strange but now I think you're ready to talk about physcal policy because we've talked about what government spending is why we why we do the government spending what are the benefits to the government for spending money we talked about how the government gets the money to spend which is through tax and now let's talk about the fiscal policy let's start with the definition of fiscal policy fiscal policy is a government policy which adjusts government spending and Taxation to influence the economy okay so it adjusts what does it adjust it adjusts the government spending and the taxation to influence the economy okay and right now you might not you might not understand anything um what does it mean by adjust and Stu we're going to come on it right now so let me first of all put the definition right here on what in fact is the fiscal policy so again I'm going to read it again because it's very important and the fiscal policy is a government policy which adjusts the government spending and Taxation to influence the economy okay that is fiscal policy okay so what this policy is is that the government wants to balance the spending with how much Revenue it gets so this policy is in order for the government to kind of balance their spending and how much revenue they receive so that it's kind of in a good budget now when we talk about this uh policy we kind of talk about it two ways right when the government spending is more than how much revenue it gets and when the revenue is more than how much it spends so we categorize it into two parts we categorize it in the budget surplus and we'll talk about what this is and the budget um oops the budget deficit so budget deficit okay so the budget surplus what is the budget surplus the budget surplus is simply when the government employs an expansionary Physical policy okay so budget surplus again we're kind of coming into some big words here but expansionary expansionary fiscal policy you see and what this is is basically when the government spending is increased and the tax rates are cut okay because of the budget surplus so budget surplus is simply when the revenue exceeds government spending okay so budget surplus is when my revenue is more than how much I'm spending okay is more than how much I'm spending so how can I improve this I do something called the expansionary Physical policy is when I increase increase my spending and I reduce my tax when the tax rates are cut cut so basically they certain balance I'm hoping you kind of understood that so a budget surplus is when the government revenue exceeds the government spending and in order to kind of balance it we apply something called the expansionary Physical policy and this expansionary Physical policy what it does it it increases the government spending and the tax rates are cut which musically means the revenue decreases what about the budget deficit the budget deficit is when the is the opposite basically when the government expenditure meaning the government spending exceeds the government revenue okay if you didn't understand that play that back and just write it down right so the government expenditure exceeds the government revenue that is when a budget deficit is caused and to now balance it out we have something called the contractionary contractionary fiscal fiscal policy I'm hoping I'm saying that right because in the previous videos I don't think I said it right or maybe I don't I don't know whatever as long as you know how to spell it right so fiscal policy okay so with contractionary Physical policy or fiscal policy basically what happens is the government spending is cut right I spend less and the tax rates are increased so that I get more Revenue so everything is in a balance okay that is what this policy is this policy helps to balance a budget and it tries to achieve it using this policy just to have kind of a balance in the budget and that was the reason on why we kind of talked about government spending first and then we talked about taxing first so because Physical policy deals with government spending and taxing okay so that is what fiscal policy is and the reason we use this policy because we want to have a balance and have a balance that can do a lot of stuff there's economic growth help in demand and Supply there's price stability effects of taxing and spending and there's a lot of stuff that helped in that so we use two types of fiscal policies so fiscal policiy is divided into two expansionary fiscal policy and contractionary fysical policies and you need to know the difference between the budget surplus and between a budget deficit when a budget surplus occurs what do I have to do when a budget deficit occurs what do I have to do for the government to kind of do that for the government to kind of balance everything up so that is the kind of uh end of the fiscal policy and we now talk about the next policy which is the monetary policy over the next policy which is the monetary policy so I'm hoping the fiscal policy um you guys have understood it so just basically involves two categories which is government spending and Taxation with monetary policy we kind of look at at the interest rate um against the money supply so money supply and interest rate we kind of look at those two stuff um now okay so let's have a look at just monetary policy and introduce that as well um there's not much to talk about in this compared to fiscal policy where there was um quite a lot to discuss about so with monetary policy it's kind of just straight concise and it's not too difficult to understand um this one okay so we'll start off by by talking about the two aspects just like how we covered um the fiscal policy and we'll start off with money supply so when we talk about money supply what is money supply okay so money supply is the total value of money available okay which might sound general knowledge right but it's basically the money supply is the total value of money available in an economy at a certain point of time so in an economy what is the value of this money okay and the government can control the money Supply through a variety of tools including like buying and selling of government bonds uh reserve of requirements of Banks and there's quite a lot of other stuff that you can have a look at so that is what we look at money supply on the other hand we have interest rates that we also talk about with the monetary um policy and interest rates just as we talked about this in the chapter three of interest rates but interest rates is simply the rate of or the cost of borrowing that certain money right so interest rate I'm hoping you already know of this we kind of already talked about what interest rates are so when a person is basically borrowing money from a bank you have to pay a certain interest and this interest is actually uh what we call interest rates okay so there's not much that kind of you know we talk about this but this is what money supply is and this is what interest rates is so what is in fact monetary policy right what from the name kind of monetary seems a bit like scary like what does monetary mean but according to me I think what monetary means is basically money value okay so what is a monetary policy okay the monetary policy is a government policy that controls money supply in an economy in order for it to have growth and stability and in order to actually um handle this money supply we use interest rates to control that okay and just like fiscal policy we have the same expansionary and contractionary okay so we'll we'll start off with expansionary monetary policy an expansionary monetary policy is when the government increases the money supply by cutting the interest rates so in this case the only way to control the money supply is through interest rates so let's say I want to increase the money supply then I'm going to cut the interest rates because when I cut the interest rates what happens people when I cut the interest rates then people are going to start borrowing more and people will start investing more okay so it will encourage people to consume more rather than save because of the low interest rates because I have to pay back less I will borrow more so if I want more money supply and what money supply means is simply just the money that's happening in the economy the the the cycle of the money as it going through like for example you can you can actually measure the money supply based on how much people are buying and selling within the market let's say a lot of people in your Market are not buying certain Goods and you want to change that you want to change the money supply you want to increase the money supply if I want to increase the money supply I'm going to cut the interest rates so people start borrowing more once I cut those interest rates people are going to borrow more people are then going to spend more okay so that is called expansionary monetary policy when I think of expansionary I'm expanding the money supply that's actually how I used to remember it back when uh I did my igc's expansionary imary policy and I I still remember I used to say expansionary which is expanding the money supply and of course you would guess it contractionary money Poli contractionary monetary policy is simply when I am decreasing the money supply and how do I decrease the money supply I can decrease the money supply by increasing the interest rates okay so those are the two things that I'm going to kind of look at with the monetary policy it's quite of a short type of policy and there's not much that you got to look at so first of all you need to know the definition of monetary policy we look at it uh in two ways we look at it in expansion monetary policy and we look at it in terms of the contractionary monetary policies so we look at the two in terms of those two categories just like the other policy so that is that second policy now let's have a look at the last policy and this last policy deals with just called supply side policy and what does this mean supply side policy uh is I think we kind of talked about it previously but what it means is I'm trying to increase the supply and productivity in the econom okay so let's now introduce supply side policy so let's just add another page here supply side policy and supply side policy is are microeconomic policies that are aimed at increasing Supply and productivity in the economy okay so I can I can actually just put that right here so that you guys can see it in writing so supply side policies um they want to the main purpose of this policy is to increase Supply and productivity if you have noticed on all these three Supply policies or sorry in all these macroeconomic policies they all have one thing in common they all have an aim when we looked at fiscal policy what what was the aim okay when we looked at fiscal policy what was the aim the aim for fiscal policy was dealing with the balance between government spending and using taxes or in fact it was just talking about the balance of government spending with monetary policy what we were looking at we were looking at money supply and with supply side policy we're looking at the productivity in the E economy it's a policy that helps increase the supply and productivity and we're going to kind of look at all the policies that we kind of go one at a time I'm just going to copy paste it read it and explain it that's how we're going to go over this supply side policy because there's not much to kind of explain like that the first part of supply side policy is the public sector Investments what does this mean so investments in infrastructure such as transport communication can greatly help the economy by making the flow of resources quick and easy and that will grow so the first type of policy or the first one of these policies within supply side policy is the public um sector Investments the next one which we've talked about previously um is the improving of education and vocational training which is simply uh the government can actually invest in education and skills which is improving the quality and quantity of the labor and the reason why they do this is because it's going to kind of help their economy later on and I've explained this just like in this video like before I kind of kind of explain that if someone is skilled if someone has a set of skills it kind of just helps the economy when I talked about the macroeconomic games I did kind of talk about that um the next one is spending on health so let's go over that one spending on health so when we're talking about spending on health we're saying that it is accessible it is going to be affordable there should be good quality health services and the main aim for supply side policies is for the economy to be more productive so that means that if my living standards have increased if my am more healthy then that means I can kind of help the economy in one way or in another way in the long term okay so supply side policies are actually long-term okay they don't happen immediately right they don't happen instantly as soon as I I I spend on health I'm not going to get a a result as soon as if I if I improve the education I'm not going to get a result as soon as possible Right supply side policies are long-term policies and this is very important so very important concept to understand because in the questions if they tell you they want to do it immediately right this is a disadvantage supply side policies take a very long time to implement and if and sometimes it doesn't even Implement so I could be spending so much money and it doesn't even work okay so that's very important to keep in mind that all the these policies take a lot of time to actually impact the economy but as the long run it does impact them okay so look at the next one the next one is the investment on housing which kind of is self-explanatory basically spending money on housing getting more houses getting more residentials this helps increase outputs because population is going to increase right population increases that kind of get gets me immigrants and these immigrants are kind of going to be working for me um in that way okay now we we have another one here this is called privatization privatization what does this mean I'm just going to explain it in just a moment privatization is basically transferring some um public corporations into private and why do we do this we do this because when they go from public to private ownership they increase the efficiency because of course the private sector has a profit motive and anytime profit is into the question right then everyone just starts you know kind of thinking in in terms of that way how can we be the most efficient how can we be the most competitive how can you know we tackle this position in a better way right so that is when privatization comes into aspect right so that is what privatization means is simply kind of making all those public corporations into private um corporations the next one is income tax cuts which is kind of a disadvantage as well for the government but when we talk about it like this uh income tax cuts is basically reducing the income tax if it reduce the income tax that means people have more uh disposable income people have now what does disposable income I I've kind of said it a lot of times I don't know if I've explained it throughout the course I might have I might not have I'm just going to explain it now because I make these videos over like a span of long so I kind of sometimes forget what I said in the previous videos but um disposable income is is kind of income that I have after everything has been removed like tax and stuff like that that's my disposable income my disposable income is the income that I can actually um start using to spend right so that's called disposable income so there'll be a better or a higher um disposable income uh the next policy that uh to implement supply side policies is subsidies and as you can see there's a trend all these policies don't happen immediately right if I just suddenly income tax cuts I'm not suddenly not everyone's going to start spending right some people will be like okay you know what let me spend let sorry let me save or something like that so they all happen over long terms with subsidies we've talked about this I don't know how many times they Financial grants that are given to Industries who need it um and yeah pretty much that's kind of it that's supply side policy okay supply side policy uh affects economic growth um economic growth again we're going to come to these maybe right now you won't understand economic growth is output so if people have the necessary skills what's going to happen there'll be a higher output because they higher workers and and in fact this part of the syllabus is very important to relate all the concepts because a lot of these questions that you're going to see in your test paper that are eight marks six marks are to come from here because a lot of it is looking at decisions and they're trying to test on what's the best decision you should have done and how you can do it in the most efficient way and bringing everything together like I've been saying economics is all about efficiency so bringing everything all together in one go being efficient that is what economics is okay so I don't care if you didn't understand anything I want you to take away this thing from the video economics is all about efficiency economics is all about making the best decision you can okay I want you to take that with you okay I think I've mentioned that efficiency aspect in every certain video if if if I haven't in one then I will be surprised I I don't know what to say but anyway I've I think I've mentioned it in almost every uh every video so those are the three policies let me go over all three okay first one fiscal policy again don't if I'm saying it in in a weird way I'm sorry okay it's fiscal physical I don't know fiscal I don't know okay whatever however you want to say okay fiscal policy monetary policy supply side policies supply side policy is kind of a long-term policy meaning the effects come after significantly long time okay so I think those are all the policies done right all policies done and dusted and now we finally go into the macroeconomic aims we now talk about economic growth we now talk about that employment we now talk about that inflation and that deflation stuff okay so now we're kind of getting into that aim and how we can further kind of get into um the part of the A and we'll start off with the first part which is economic growth and this is is a very important aspect because economic growth kind of is very very important for any type of economy the economic growth is very important part of any economy okay economic growth economic growth what is economic growth and I think maybe you kind of already have a hint of what this thing is because I've been talking about this in the aims I've been talking a little bit about it as we've been talking about the different policies so economic growth um spread into two stuff right growth which means increasing it's trying to get better okay economic the economy is becoming better and better economic growth put those two things two things together let's get the definition here economic growth we'll straight away go into the definition let's not waste any time and economic growth is this economic growth is an increase in the amounts of goods and services with reduced per head of the population over a period of time what this simply means is that for an economy to measure the economic growth we look at something called the GDP the GDP is simply the amount of goods and services that is produced over a period of time okay what this means is is if I produce let's say 5,000 products okay my GDP is the the gross domestic product it's the total market value of all the final goods and services within the economy okay and what we look at and why GDP is so important is because a lot of stuff revolve around the the fact of GDP gross domestic product and because I'm mentioning GDP a lot I think it's important for you to know what GDP means and I'm going to put it here GDP is simply the gross domestic product um and what this means is it's the total market value of all final goods and services that are produced within an economy by its factors of production this is what we mean by GDP okay so GDP is this total market value this is kind of the main thing that you kind of have to take it's the total market value okay now under GDP we kind of separate GDP into two right we we have two types of GDP and uh this is not that important to kind kind of know and I think in your syllabus uh I think you're supposed to remember what GDP is I'm not sure if you're supposed to know the two factors you can kind of look at the syllabus for that but I'm just going to still explain both of it and there's two types of gdps right there's the nominal GDP and there's the real GDP and I'm just going to past the difference between the two or in fact the meanings between the two gdps okay so let's look at the two gdps uh closely and nominal GDP is the the value of output produced in an economy in a period of time measured at their current market values or prices is called the nominal GDP what is does that mean okay so the value of output right so that's the output first of all produced at the economy in some time I'm hoping the first part is clear and it's measured according to the current market value with the real GDP it's assuming the prices are unchanged over time with this one is the current value so that means it keeps changing so in this GDP it's constant prices and it's produced uh provides a measure of the real output of the country kind of it's like a constant price and what's that real output of a country that is what GDP is uh also a quick thing you need to know is what is GDP per capita mean GDP per capita GDP per head means the GDP the G total GDP okay which is so the total GD G DP over the population this is what we call GDP per head which means you can kind of think of it like what is the average output per person okay so GDP per head measures the average output per person in an economy okay because I'm kind of taking into consideration of the whole economy now what does this mean this means that if per person I have a higher output then that economy is very good which means if the GDP per capita is very good if my GDP per capita is very high that means my economy is very good because more people are certainly having a good income to buy these products so that means the GDP per head should be high okay so that is what we kind of introduced by what is GDP and we're going to go straight into the causes of economic growth okay and if you still don't understand what what the hell is economic growth thing is you're going to understand this in just a moment right now okay so causes of economic growth okay and we'll start off with this why what is first of all economic growth I'm going to just kind of Define it economic growth is basically when my output is increasing right this is increase in output so how can my output suddenly increase what are these causes and we'll start off with the first one which is the discovery of more natural resources let's say I've suddenly discovered a lot of oil of course my economic growth of oil is going to rise of course my output of oil is going to suddenly rise that means that more resources means that there's more production capacity more resources means more production capacity means a better economic growth okay this is very very important for your your essay questions so you kind of need to know about economic growth very good okay next Factor the next factor is the investment in New Capital and infrastructure right this is kind of similar to supply on the factor factors of Supply I think uh but kind of Supply is kind of related to economic growth maybe that's why but when there's an investment in new technology and infrastructure there's an investment in new Machinery there's an investment in technology which able for the economies to kind of expand that production capacity when I can kind of expand this production capacity there's going to be more output clear as as easy is that the next one is the technical progress what does this mean technical progress simply means that there's new inventions right new inventions production processes and if there's any certain new invention suddenly I've kind of discovered something that produces something in a much quicker way this is going to kind of boost the economic growth now you might asking you might be asking yourself wait we're talking about macroeconomic aims we're talking about the government why is the government not involved in any of this very very valid question and we're going to come to that in just a moment just give me just give me some time to try to kind of explain what's happening here okay this is kind of the causes of economic growth okay and we'll talk about like benefits and drawbacks and we'll also talk about the opposite of economic growth which is something called recession which is also very important we'll talk about also that kind of and then we'll finally talk about how the government is involved okay so a lot of this is kind of like I'm giving you like a a backstory of everything you know what's economy growth how is it affected this that and then the government how can it help because the government is always in the middl man and it's kind of always helping in the middle okay just like the other policies we'll come to that okay so don't worry about that right now the next factor or the next cause of economic growth is the increase in the quantity and the quality of factors of production well this simply means that once I increase my quality of factor production or once when I increase my quantity of a certain factor of production that simply means that my productive Workforce will increase for example one of the factors of production is labor if I increase labor what's going to happen I have more workers what's going to have more workers equals to more output more output equals to economic growth okay a simple way to think of it is economic growth is directly kind of proportional to the output so if the output is increasing the economic growth is kind of is increasing okay look at it in terms of that way so those are the causes of economic growth I'm hoping that is clear these are the causes of economic growth let's now have a look at the benefits of economic growth and why the government is so you know involved in this economic growth and I kind of have slightly talked about it but we'll go over each of this I'm going to just paste all the benefits and we'll go over each one of them one at a time okay so the benefits of economic growth let's look at each one of them step by step okay okay so the first one is with an economic growth which means more output means that there is a greater availability of goods and services of course because if I have more output if I have more of certain Goods that means that I have more availability of goods which means I have I can easily Satisfy My Consumer wants and needs the next one is increased employment because there is more output okay because there's more output that means I need probably more workers to kind of handle everything so that means there's an increased employment increased employment leads to increased income increased income leads to increase spending increase spending incre includes uh which kind of Rises the uh taxes and therefore more government money and the government can now use that money to do whatever they want in order to boost that economy see how I kind of linked it we kind of we'll practice the linking when we start doing questions P paper questions you kind of will get the the gist of how everything works in fact I already have a video if if you kind of don't want to look at the theory part or once you finish the theory part I have a live I did a live video where I go over the entire question and how everything is linked together that's a very good um video when when you want to practice how you can relate every concept into like one big uh chain okay the next one is in underdeveloped or developing economies so some economies that are coming getting to develop uh the economic growth can drastically improve living standards which means that a lot of people when there's more output competition can happen and if there's competition they can reduce the prices this can help people who poverty also in another way to think of it is um okay let's let's let's try to do the chain thing right economy growth happens there's going to be more employment there's going to be more employment there's going to be more uh more disposable income because more employment equals to they get an income if they have more income it kind of removes people from poverty right because of they start they start getting work so that's another chain that you kind of can link it at um the other benefit is that there going to be an increased kind of sales and profits for businesses more profits for businesses is always good for the economy because they kind of get motivated to keep going and uh rise the output which will help the economy growth in the long run as well and also if they have more profits they can kind of invest in capital goods is kind of these two points are linked together um so that's going to again increase my output that's going to help the economy growth because investment in capital goods will of course always affect that and then there's a low and stable inflation which means that more output kind of reduces the price sometimes because more volume is there so it kind of reduces the price price is good low price is always going to not cause inflation or stable inflation okay and then we talk about um increased tax revenue so increased um tax revenue which I kind of linked it in the previous one but um basically as increase as as spending increases because uh people get work or people are unemployed uh that means that the first of all you get income tax and then you get tax from indirect tax through goods and services um so that's another way that's going to actually benefit the government um so with the advantages there's kind of even drawbacks with economy growth uh and we'll talk about that now okay so let's talk about the drawbacks of economic growth okay so the drawbacks of economic growth the first one is um there could be something called technical progress which means that once when um they realize that Capital starts producing so much more than actual Labor uh this can be unemployment which means like in the previous uh stuff we talked about the fact that if there's an improv in technology it actually causes economic growth so now let's say there's new techn techology and because of this new technology they kind of don't need workers anymore because what the workers used to do is replace by new technologies or new inventions so it's kind of replaced the workers which can lead to unemployment which is a bad sign for the economy as well um and then scar resources can be used up rapidly and uh because as I'm trying to increase the output drastically that means I'm kind of using all my resources and uh these natural resources will get depleted over time because they are scars okay um and then increasing production can increase negative exter externalities which uh I think we talked about this in uh market failure which means that once I'm producing a certain type of good there is always chances of um negative externalities to occur which is never good okay and then um yeah so that's kind of uh all the disadvantages that we talk about um there's stuff like of course may cause inflation which means because there's a growth in output economic growth can cause infl and then finally is that um widening income inequalities means that for economic growth um as like Rich investors businessmen they um will of course gain more in working class compared to the poor during a growth which therefore means that you know they benefit of growth um and it's not evenly distributed with the with the poor people and the rich people like there's a big difference between that so there's um that increases the income inequality which therefore causes relative poverty and we'll talk about what relative poverty is in fact in like I think the next chapter it is we talk about poverty as a whole and we talk about uh everything that deals with that okay so right now the main focus is not that but it's economic growth and um yeah so a lot of a lot of these concepts are kind of linked within each other uh which is I don't know um good or bad but as as you'll see like in the end of all chapters because everything gets linked together um and in fact already in like chapter 4 we're kind of linking back stuff to chapter 1 2 and 3 so it's very important to understand all the concepts that we have talked about so far and then you know kind of Link everything into like questions and that's how questions are asked um because it kind of links sort of uh Concepts all Concepts into one and helps you make a decision so that's what they kind of test it's it's to look at your thought process as you go over all the concept of Economics it's not only just understanding the economy Concepts but actually how to apply them in real life um day-to-day stuff so that's what uh economic growth is and um we now talk about something called recession which is the opposite of economic growth so economic growth is more output so what happens when there is there's a fall in GDP what happens when the output is falling and that's what we call um recession that's what we call a recession and um this is the definition a recession is a phase where there's negative ex there's negative economic growth okay so the opposite of an economic growth is called a recession and um what happens here is remember with economic growth the GDP is rising now with the recession the GDP is falling that means the the gross domestic um the product the output is kind of falling it's kind of reducing and this could happen because of several um stuff and let's kind of look at the same way we covered the other ones let's look at the causes of a recession and there's quite a lot that you sort of look at it in um that way so let's look at it okay so the first cause of a recession is the financial crisis which means that if a certain bank has a shortage of liquidity what does that mean that means that um they do not want to sort of like lend money they don't want to lend money for Investments so when they don't to lend money for Investments what happens is um you know you stop sort of like uh investing in new technology you stop investing in new methods of creating these products and because of that the output will kind of fall so output Falls because Investments decrease because of the banks so such a financial crisis can cause that the next one is when there's a rise in interest rate kind of again linked to the topic above or the sorry the the point above uh is that when there's a of course increase in interest rates that simply means that it's going to now pay me or cost me more to borrow something because I have to pay the bank more because of that there's an rise in interest rates and whenever there's a rise in interest rates we usually always compare it with borrowing and we we compare it with investment okay so when there's a rise in interest rate what's going to happen to borrowing it's going to decrease because uh I have to pay the bank more and once when borrowing decreases that means the Investments decrease Investments decrease kind of linked with the point above as I said when I reduce the invest investment it's going to kind of um not make me um invest more into the business which kind of makes the output fall because again I'm not trying to improve my technology or so on so forth there could be many reasons on why investment leads to fall in output uh the next one as you can see here it's the fall in real wages which means that um usually what happens is when the wages do not increase um in line with inflation meaning if the prices rise and the wages don't rise um that would mean that there's falling incomes and demands okay which means that I have less income okay and I cannot afford these products so if I can't afford these products neither can the suppliers make these products because they're not getting that cycle of um you know getting the money from the consumers and then they can produce so that again affects the overall output of the entire economy um and then which causes a fall in consumer business it's kind of all like related to other and um fall in consumer or business confidence means that it reduces supply and demand when supply and demand is reduced it affects the whole Market as a whole and as the market is affected the output will of course be affected economic growth will be affected there causing a recession uh another reason of that of a recession could be a cut in government spending you need to also know this very important concept on how government spending is related to economic growth a simple way to kind of uh think of it is if if I increase government spending the the economic growth is going to increase it's just a kind of concept that you need to know and I can kind of explain it deeper deeper but there's no reason to that okay you can kind of also make it out of Al loan on why when I increase government spending why does economic growth increase and we we kind of talked about it in supply side policy if you thought about it like that because when I spend money let's say on education people are going to get the skills people are going to get the required training once I get the required skills I'm going to start getting employment I'm going to start getting work once employment increases then the economic growth increases so therefore a cut in government spending leads to um a shortage or leads to kind of a recession and then a trade Wars what's trade Wars trade Wars is uh simply when there's uncertainity in markets which simply means that there could be many several reasons for example like the pandemic okay a lot of businesses did fall down there because of the uncertainity in the market because you don't know what's going to happen when you produce a certain type of good you know like you know innovating something new during a pandemic could even go like a flop because maybe that cannot work so there could be trade Wars in that case um which leads to hesitant um businesses leading to a fall in the supply leading to a recession and then uh last but not least is the supply side shocks which means that U for example when there's a rise in oil prices as they say here any rise in price causes inflation once inflation is caused there's a lower purchasing power because of course when the price gets so high and and the income Remains the Same um you kind of have a lower purchasing power when you have a lower purchasing power they don't start producing a lot of oil because not a lot of people can pay it or cannot afford it so there's again a um a recession in that way um and we kind of need to link this with um the consequences of recession and I'm quickly going to go you know just go over each of one of them and the first one is firms will go out of business because as demand falls down um of course the firms are going to go out of business the second one is unemployment because of a recession uh there's less output if there's less output I kind of don't need workers so there's going to be an unemployment unemployment leads to fall in income because I'm not going to be employed which causes rise in poverty kind of all linked together and there might be extreme cases and you but you know in economics we're always talking about the entire economy as a whole and not just one individual person because if we start to look at each individual scenario we can't really kind of figure out because there's always so many factors that affect something and you'll kind of notice this even in like your multiple choice exams you know um a lot of times there could be ifs and buts but rather you look at the entire economy and what is the right decision to make um in that case so you kind of you can't be like oh fallen income is Will mean poverty straight away right so we're looking at the generic idea the whole idea so those are some of the consequences of recession okay now I've kind of talked about economic growth and recession let's now look at where the government comes into play and what the government needs to do uh in order to do this uh in order to improve the economic growth so what the government does it uses some it uses the two policies that we talked about it uses all the policies in fact okay that we talked about before what it does it uses something called if I want to improve my economic growth what does that mean that means if I remember before I said that if I want to increase my economic growth the government needs to spend so if the government needs to spend think about what type of policy is that that's physcal policy think about what type is it expansionary contractionary it is expansionary so what does it need to do it needs to do expansionary Physical policy and now if I want to increase the money supply what is that monetary policy so I'm using expansionary Physical policy and monetary policy and alongside that I'm going to be using Supply side policy because supply side policy as I talked about it previously improving the education and stuff like that is going to increase the economic growth but however this is in the long run okay so that's where the government comes into play a government uses its policies to kind of help the economic growth and in fact you you'll see it in also the other ones um you'll basically see that these policies are basically um kind of used to guide the government in um solving issues like the economic growth the unemployment employment stuff um inflation deflation exchange rates so on so forth so these policies are very important because the government kind of uses these policies to help improve their aims as to improve the economy basically okay so that is um that's basically the economic growth that's the entire topic of economic growth and um the next topic is um it's going to be about employment and unemployment so here we talk about the labor force we talk about um how employment is affected how unemployment you know how you can measure unemployment first of all um and the different types of unemployment and what are the consequences of unemployment so let's have a look at that right now okay so let's talk about employment and unemployment so I'll just put that here okay so when uh okay let's just put it on another page so it's better like that um paste okay so employment and unemployment so when we talk about employment and unemployment what are we kind of talking about so here it's a topic that I'm hoping you kind of already understand what this topic is trying to do and say um employment and unemployment just deals with the labor force and the workforce and employment is defined as an engagement of a person in a labor force okay actually you need to know this definition um as as like you kind of do need to know as generic this kind of definition is but um employment is simply when a person is in the labor force okay and what is the labor force the labor force is the working population of an economy so all the people who are willing and able to work is called a labor force and a person that is involved in this labor force is actually employed or has employment and what is unemployment unemployment is this situation where people in the labor force are actively looking for jobs but are currently unemployed so you need to kind of memorize these two definitions um and they're going to be used throughout this course in fact they are the the name of the topic or is actually employment and unemployment um quickly another type of um term that you need to know is full employment and what is full employment full employment is a situation where the entire labor force is employed which means that all people who are able and willing to work are employed and the unemployment rate is 0% and if you ask yourself is this ever possible uh no I wish I don't know I don't know what's the the country with the lowest unemployment rate but maybe you kind of have to research it but is no way that is 0% I don't think there's any country where everybody who is able and willing to work can work I don't know about that okay so that is kind of the definitions and there's not much uh introduction I'm sorry if I just went straight into definitions but there's not much you know you need to know about here it's just employment and unemployment right how what what what else can you talk about this it's very important topic in terms of like questions and stuff but um yeah there there's not much you kind of need to look at um now the first kind of concept that I need to uh discuss is something uh involving the measuring of unemployment okay measuring unemployment sorry for the bad in writing I don't know why it's glitching or something but we're going to start off with measuring unemployment now how do I kind of measure unemployment how do I know if my my certain type of um comp I was about to say company my certain type of economy is unemployed the first one in the most generic way and you might have kind of seen it in your um country but it's called the claimant count okay and the claim account is simply when unemployment people can file for unemployment claims which are benefits by the government and the government has to kind of give money to these unemployment people and The Government Can Count the total number of unemployment claims made and that is the unemployment okay unemployment rate is the number of people that are unemployed over the total number of people in the labor force okay that is how you can kind of calculate unemployment rate the next one is the labor surveys which are basically economies conduct surveys uh among the entire labor force and collect data about it and then simply look at that data and kind of make a a judgment based on that okay so that's kind of how you have to look at how how to measure unemployment if you were trying to look at that there's two ways to measure unemployment okay yeah so let's look at the types of unemployment and that's kind of the main topic of this entire topic main subtopic out of this entire topic is that was the that was the right I think way to say say it but let's look at the causes types of unemployment and you need to memorize each one of them and we're going to go over each one of them right now and the first one is the frictional unemployment start off with the first one the first one is the frictional unemployment frictional unemployment is simply when the result of workers leaving one job and spending time to look for the other job that type of unemployment basically I've just left a job and the time I'm looking for another job is called frictional unemployment so look at the next one this next one is cyclic unemployment I'm going to kind of just go over the ones that kind of don't need explanation I'm just going to read them through and I'm hoping you kind of understand them cyclic unemployment if you don't understand any concept the comment section is always down I'll try my best to explain it okay cyclic unemployment occurs when um there's a fallen demand for the product that you're kind of working on because of some typee of recession so when the demand Falls the firms will cut their production because um they kind of can't afford that so they cut their production and the workers will therefore lose their jobs and this would C cause a n n Nationwide unemployment so that's called cyclic unemployment so cyclic unemployment is kind of based on the fact of demand okay and you need to know these types of unemployment so I'm I'm going to that's why I'm going to heavily emphasize on all of them uh the next one is the structural unemployment and structural unemployment occurs due to long-term change in the structure of an economy what does this mean means that workers end up having the wrong skills in the wrong place that can make them unemployment there's two types of um structural unemployment and that is the technological oh whoa whoa whoa technological unemployment guys allow it I've been recording for very long so okay um techn olical unemployment which means that stuff like robots machinery and technology has are more efficient than labor so they've kind of substitute them for the labor leaving other people jobless so this is structural unemployment the other one is sectorial unemployment which means that unemployed because of a certain sector industry declines right for example let me think of something let's say during covid-19 uh construction workers were kind of not needed so they lost a lot of jobs they were unemployed so that was kind of okay that's more of like a seasonal um but I don't know okay let's that's more of a I think it's sectoral unemployment so basically the industry declines as a whole so the workers kind of decline in that way and then we have the seasonal unemployment so with seasonal unemployment um so here in this case this occurs as a result of the demand of a product being very seasonal for example certain products do well in certain Seasons so you kind of only need workers that particular seasons for example the demand for umbrellas so people who make these umbrellas will only be employed during the times when you need umbrellas and not in all in all all terms okay and the last type of employment is the voluntarily unemployment that means they voluntarily don't employ even if they're able to so when people choose not to work for various reasons that could be maybe they want to study more maybe they want to have a break maybe they want to have a vacation maybe they're not looking for work so this is called voluntarily unemployed and these people do not belong in the labor force okay that's what they kind of they're saying here okay so those are the types of unemployment very important to know all of these unemployment and you kind of need to use um that throughout okay now let's now discuss the consequences of unemployment which means what does this mean which means that when there's unemployment why does this affect the economy and why does the government really care uh if there's an unemployment and why it's so important to kind of talk about unemployment so the consequences of unemployment is what we're going to have a look at now okay starting off with the first one and that would be the most obvious one which is the fact that people are going to now lose consequences of unemployment so people are basically will lose their working skills if they are unemployed for a very long period of time so if these people are basically un employed for a long period of time um they are going to basically um make it even harder to find suitable jobs because they would lose their working skills and because they lose their working skills and because they remain unemployed that means the living standards will fall because their incomes will be low whenever an income is low the living standard is kind of going to be low as well um the next one is the unemployment will lead to Poverty poverty um and a type of correlation that you can make is that um the unemployment will lead to Poverty homelessness and ill health which kind of encourages people to still commit other crimes which is always bad for the economy as a whole another consequence of um unemployment and kind of these stuff are um stuff that you you can think of it like what when unemployment happens what kind of happens for example um you know you have to kind of retrain these workers uh because they lose those skills they lose the necessary skills and um you kind of have to put more money to retrain these workers because they don't have the skills that they kind of have that they used to have IED I used was that was a lot of like word play game there um but um yeah workers will be demotivated as well because um especially in stuff like recessions and stuff where they lose uh their jobs they could be very demotivated to work leading to an unemployment again uh which is bad again right so those are just some consequences of unemployment and the list keeps going on so what I want you to do is go to the notes read through all the consequences of unemployment because this topic is is is kind of a lot of just explaining you know as a like just constantly reading stuff right so this the only way to do well in this certain type of topic is kind of to go those notes and kind of just read them a lot of it is you're going to find it like general knowledge for example stuff like this of course when you're employment you're going to lose the working skill of course when you're employment you're going to kind of maybe look at crime rates crime rates are going to increase maybe you have to retrain these workers right they're going to be demotivated stuff like that so on so on so forth um quickly now talking about the policies because we're always going to look at the policies and how we can reduce this unemployment the policy we use here okay is let's say we are unemployed if you're unemployed what do we have to do we have to use expansionary policies for example expansionary fiscal policy means cutting down taxes if I cut down taxes and increase government spending this could most likely increase the jobs because if I sort of do like government spending government jobs that can increase employment if taxes kind of are reduced as well they kind of have more income to dispose like the income that's kind of left uh but yeah so that's um that's employment and unemployment right and you kind of need to look at the two different types of policies that can of do this now we're going to go more in- depth of these when we pause paper questions and how we kind of Link every policy because so far we've kind of done everything in order to talk about employment unemployment now you need to use your economic skills to uh look at how we can reduce these unemployment policies okay uh and now let's finally go in fact that's just kind of it for employment and unemployment and I might have missed a few types of um notes here and there and that's the reason because of this is because we've covered a lot of this stuff right we've covered a lot of this stuff and this type of topic is um kind of reading based meaning you kind of have to read it it's kind of like the previous chapter a lot of in the end it was kind of reading based there's not much that you can kind of look at okay now we end with the last topic and this last topic is inflation and deflation so this is the final topic inflation and deflation that we kind of talk about in this Final Chapter inflation and deflation okay so let's start off with inflation and what is inflation I think I think I've already covered this I've already talked about this in one way um in in in what exactly is inflation so inflation is is the general and sustained rise in the level of prices a quick easy way to understand what inflation is is you simply just need to look at a certain price Rising so let's look at the definition of inflation this is not a really big topic so we'll kind of finish in just a moment so if you're already tired from watching this video for so long we're kind of almost done just wait through for a bit right um okay but anyway inflation is when a certain type of goods price Rises over a certain period of time and inflation is measured on something called the Consumer Price Index which is the CPI okay that's what we call Consumer Price Index very important uh thing to also know is the CPI and you need to kind of um look at what the CPI is what is CPI CPI is calculated in a way where basically a selection of goods and services normally purchased by typical family is identified so certain types of goods that are um that's typical when buying them I'm going to pick them these prices are um are basically monitored okay once I monitor them and then something like this like the first day I'm going to check the price second day I'm going to check the price and then you're going to see whether the price changes over time so that's what inflation or how inflation is actually measured um using the CPI now in this topic um we kind of just look at the um causes of inflation so let's quickly go to the causes of inflation and I'm going to cover causes of inflation um and sorry if it's kind of rushed but there is again this is a type of topic where it's read based so I'm just going to try to go over the topics and then it's your duty to read over it and understand it in that way okay so first of all inflation there's two types of inflation we have demand pull inflation and we have cost push inflation demand pull inflation is simply inflation that's caused by an increase in the aggregate demand what this means is that when the demand increases for a certain product and producers then you know increase the price of it we call this the demand pull inflation on the other hand cost push inflation is simply when there's an increase in the cost of production and because there's an increase in the cost of production there's going to be a rise in the price of that certain product so those are the two types of inflation that you need to know and with that to in mind you kind of can relate it with the causes of inflation so there are two types of causes is one through aggregate demand and two with the cost another way is a rise in money supply so RIS in money supply in contrast with the output is another reason for inflation so that means basically when the supply is very high but the output um compared to the output then that would also cause inflation to occur looking at the consequences of inflation there's not much that you kind of need to look at in here but with the consequences of inflation is first of all the purchasing power that's in fact the biggest one here because uh as prices Rises um first of all um the certain type of product is going to now become quite expensive when the certain type of product becomes expensive my income or my purchasing power is kind of going to reduced so when the price level rises the certain type of goods are now going to fall because this would of course reduce the purchasing power the next one is inflation causes inflation what does this mean inflation causes inflation meaning um as there is inflation already let's say okay this might cause workers to kind of demand higher wages when I want more wages because if there's more wages then the only reason the the business can in fact increase the wages is by increasing the cost of production increasing cost of production uh increases the price of the raw materials so on so forth and you can see it's kind of like an endless cycle where inflation will now suddenly cause inflation therefore inflation is really really bad um for the economy now how do I control inflation very important we look at again the policies we'll start off with the first one the first policy that we need to use is contractionary monetary policy with contractionary monetary policy what happens contractionary monetary policy I'm going to raise the interest rates because I raise the interest rates this is going to discourage the spending okay therefore the prices right because we want to reduce spending because the prices are too high and this is going to reduce the money supply in the economy which will help cut demand we basically want to help cut the demand because we demand is now too much for for the inflation right the X next policy we look at is the contractionary Physical policy the contractionary Physical policy um basically involves the fact that we we want to reduce demand first of all inflation the only way to solve inflation is kind of to reduce the demand so if I want to reduce the demand I'm going to raise the tax if I raise the tax that's going to discourage spending so as you can see there's a common Trend in order to kind of control inflation in order to control inflation I basically have to reduce spending in the economy okay and last but not least supply side policies for example using privatization using deregulation those basically help inflationary pressures okay so that's actually how we kind of look at how to control um the um inflation now just a quick topic and we'll then conclude which is deflation deflation is the opposite of inflation and deflation is simply when um the supply aggregate supply exceeds aggregate demand in the other one aggregate demand exceeds aggregate supply that's why we want to reduce the demand okay very important concept to kind of um know and some reasons of deflation could be the fact that maybe there's a reduced cost of production um reduced cost of production reduces cost to push inflation okay maybe the demand has fallen that causes also deflation right and the the problem with deflation could result to unemployment maybe because we don't need as many Goods as we want um this could also lead to a recession because economic growth is down because lower is the output tax revenue falls down again um so on so forth okay and to now um how do you kind of fix deflation it's the opposite of how you fix inflation so to fix deflation you do expansionary policies for the other one inflation you use contractionary policies okay so yeah that's kind of it for um the inflation side and there's not much with inflation and deflation and employment and unemployment so it kind of seemed like it was rushed into but it's more of a a type of topic where you have to kind of read um and just kind of memorize because there's not a lot of explanation needed okay a lot of it is just common sense a lot of it is just you need to read and you need to kind of memorize it and understand it okay so with that being said um that is kind of it for inflation deflation and kind of it for chapter 4 okay we've covered all the kind of macroeconomic AIMS in the introduction and the following two chapters we still talk about macroeconomic aims and we in fact talk about um the we talked about the the next we talk about living standards we talk about poverty and finally we end with foreign EX inuries in chapter 6 so with that being said this is the end of today's video I'm hoping you like are continuing the series and I'll see you in the next video hit the like button subscribe and I'll see you in the next video goodbye