What is Fiscal Policy? Fiscal policy refers to the government’s budgetary policy, which involves controlling its level of spending and tax rates within the economy. The government uses the two tools to influence the economy. It is the sister strategy to monetary policy. Although both fiscal policy and monetary policy are related to government revenues…
What is Conflict Theory? Conflict Theory, developed by Karl Marx, purports that due to society’s never-ending competition for finite resources, it will always be in a state of conflict. The implication of this theory is that those in possession of wealth and resources will protect and hoard those resources, while those without will do whatever they…
What are Normal Goods? Normal goods are a type of goods whose demand shows a direct relationship with a consumer’s income. It means that the demand for normal goods increases with an increase in the consumer’s income or expansion of the economy (which generally will increase the income of the population). Normal goods demonstrate a higher…
What is Rent-seeking? Rent-seeking is a concept in economics that states that an individual or an entity seeks to increase their own wealth without creating any benefits or wealth to the society. Rent-seeking activities aim to obtain financial gains and benefits through the manipulation of the distribution of economic resources. Economists view such activities as…
What is Foreign Direct Investment (FDI)? Foreign direct investment (FDI) is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest. Lasting interest differentiates FDI from foreign portfolio investments, where investors passively hold securities from a foreign country. A foreign direct investment…
What is Economic Collapse? Economic collapse refers to a period of national or regional economic breakdown where the economy is in distress for a long period, which can range from a few years to several decades. During periods of economic distress, a country is characterized by social chaos, social unrest, bankruptcies, reduced trade volumes, currency…
What is the Debt-to-GDP Ratio? The debt-to-GDP ratio, commonly used in economics, is the ratio of a country’s debt to its gross domestic product (GDP). Expressed as a percentage, the ratio is used to gauge a country’s ability to repay its debt. In other words, the debt-to-GDP ratio compares a country’s public debt to its…
What is the Infant Industry Argument? The infant industry argument, a classic theory in international trade, states that new industries require protection from international competitors until they become mature, stable, and are able to be competitive. The infant industry argument is commonly used to justify domestic trade protectionism. The infant industry argument was initiated by…
What is Pareto Efficiency? Pareto Efficiency, a concept commonly used in economics, is an economic situation in which it is impossible to make one party better off without making another party worse off. Understanding Pareto Efficiency To clearly understand the concept of Pareto Efficiency, it is important to introduce the concept of Pareto Improvement. Pareto…
What is the Law of Demand? The law of demand states that the quantity demanded of a good shows an inverse relationship with the price of a good when other factors are held constant (cetris peribus). It means that as the price increases, demand decreases. The law of demand is a fundamental principle in macroeconomics….
