Pak Eco Ebad
Pak Eco Ebad
What Is Economics?
Economics is a social science that focuses on the production, distribution, and consumption of goods
and services. The study of economics is primarily concerned with analyzing the choices that individuals,
businesses, governments, and nations make to allocate limited resources. Economics has ramifications
on a wide range of other fields, including politics, psychology, business, and law.
KEY TAKEAWAYS
Economics is the study of how people allocate scarce resources for production, distribution, and
consumption, both individually and collectively.
The field of economics is connected with and has ramifications on many others, such as politics,
government, law, and business.
The two branches of economics are microeconomics and macroeconomics.
Economics focuses on efficiency in production and exchange.
Gross Domestic Product (GDP) and the Consumer Price Index (CPI) are two of the most widely
used economic indicators.
1. Microeconomics
Microeconomics studies how individual consumers and firms make decisions to allocate resources.
Whether a single person, a household, or a business, economists may analyze how these entities
respond to changes in price and why they demand what they do at particular price levels.
Microeconomics analyzes how and why goods are valued differently, how individuals make financial
decisions, and how they trade, coordinate, and cooperate.
Within the dynamics of supply and demand, the costs of producing goods and services, and how labor is
divided and allocated, microeconomics studies how businesses are organized and how individuals
approach uncertainty and risk in their decision-making.
2. Macroeconomics
Macroeconomics is the branch of economics that studies the behavior and performance of an economy
as a whole. Its primary focus is recurrent economic cycles and broad economic growth and
development.
It focuses on foreign trade, government fiscal and monetary policy, unemployment rates, the level of
inflation, interest rates, the growth of total production output, and business cycles that result in
expansions, booms, recessions, and depressions.
Using aggregate indicators, economists use macroeconomic models to help formulate economic policies
and strategies.
What is Economy?
Services Sector
Services sector of Pakistan economy is quite a large sector as it contributes to the
extent of 58% in the GDP. It has many sub-sectors like transportation,
communication and storage, retail and wholesale trade, insurance and finance,
housing services (ownership & dwelling), general government services (Public
administration & defense) and many other private services. All these sub-sectors
have vital role in the economy of Pakistan. Generally, without services sector
economy of any country cannot run. This sector absorbs the major labor force of
the country.
From a macro- economic point of view, one can show that an international
transaction differs from domestic transaction in terms of (foreign) currency
exchange. Over a period of time, all countries aim at balanced flow of goods,
services and assets into and out of the country. Whenever this happens, total
international monetary reserves are viewed as stable.If a country’s exports
exceed imports, it then experiences a balance of payments surplus or
accumulation of reserves, like gold and foreign currency. When the country
loses reserves, it experiences balance of payments deficit (or imports exceed
exports). However, depletion of reserves reflects the unhealthy performance of
an economy and thus creates various problems. That is why every country aims
at building substantial volume of foreign exchange reserves.Anyway, the
accumulation of foreign exchange reserves is largely conditioned by the
exchange rate the rate at which one currency is exchanged for another currency
to carry out international transactions. The foreign exchange rate should be
stable as far as possible. This is what one may call it external stability in
price.External instability in prices hampers the smooth flow of goods and
services between nations. It also erodes the confidence of currency. However,
maintenance of external stability is no longer considered as the macroeconomic
policy objective as well as macroeconomic policy instrument.
Macroeconomic policy is also used to attain some social ends or social welfare.
This means that income distribution needs to be more fair and equitable. In a
capitalist market-based society some people get more than others. In order to
ensure social justice, policymakers use macroeconomic policy instruments.We
can add another social objective in our list. This is the goal of economic
freedom. This is characterized by the right of taking economic decisions by any
individual (rich or poor, high caste or low caste).
FISCAL POLICY:
By understanding fiscal policy, individuals can gain insights into how
governments manage their economies.
Definition & Explanation Of Fiscal Policy
Fiscal policy is the strategic use of taxation and government spending to shape
economic conditions and promote growth and stability. It is a critical tool that
governments use to stabilize their economies. It involves the management of
government revenue and expenditure to achieve specific economic objectives,
such as controlling inflation or reducing unemployment. By making changes in
taxes, public spending, and borrowing, fiscal policies aim to influence the overall
health and performance of an economy.
Economic Objectives
The primary purpose of implementing fiscal policies is to achieve specific
economic goals. These objectives can vary depending on the prevailing economic
conditions and priorities set by the government. Some common goals include:
1. Controlling Inflation
When prices rise too quickly across an economy (inflation), it can erode people's
purchasing power. Fiscal policies can be used to curb inflation by reducing
government spending or increasing taxes.
2. Reducing Unemployment
High levels of unemployment can be detrimental to both individuals and the
overall economy. Governments may implement expansionary fiscal policies that
involve increasing public spending or decreasing taxes to stimulate job creation.
3. Promoting Economic Growth
Fiscal policies play an important role in fostering economic growth by investing in
infrastructure projects or providing tax incentives for businesses.
4. Stabilizing Business Cycles
Economies go through periods of expansion (boom) followed by contraction
(recession). Fiscal policies can help smooth out these cycles by adjusting
government spending levels during different phases.
5. Promoting Macroeconomic Stability
One of the main goals of fiscal policy is to achieve macroeconomic stability. This
entails maintaining a balance between economic growth, low inflation, and stable
employment levels. To achieve this, fiscal policy can be used to stimulate demand
during periods of economic downturn or curb inflationary pressures when the
economy is overheating.
6.Income Redistribution
Fiscal policy also serves as a tool for income redistribution within society.
Governments can use taxation policies to collect revenue from higher-income
individuals or corporations and allocate it towards programs that benefit lower-
income groups. By doing so, fiscal policy aims to reduce income inequality and
promote economic equity.
7.Promoting Economic Equity
In addition to income redistribution, fiscal policy seeks to promote overall
economic equity within an economy. This involves ensuring that all individuals
have equal access to education, healthcare, and infrastructure development.
Through targeted spending on social welfare programs and public goods,
governments can address disparities in opportunities and improve living standards
for all citizens.
8.Ensuring Long-Term Sustainability
Sustainable growth is a critical goal of fiscal policy. Governments need to ensure
that their expenditure does not lead to unsustainable levels of debt or deficits over
time. By carefully managing spending patterns and revenue collection, fiscal
policy aims to maintain a healthy balance between short-term economic objectives
and long-term fiscal sustainability.
Conclusion
Understanding the objectives and components of fiscal policy is essential for both
policymakers and citizens alike. The objectives include promoting economic
stability, achieving full employment, controlling inflation, and addressing income
inequality. The components of fiscal policy encompass government receipts,
direct tax code bills, disinvestment, and government expenditure.
Moreover, it is important to distinguish between different types of fiscal policies
such as expansionary and contractionary policies. To ensure a comprehensive
understanding of fiscal policy's impact on the economy, it is crucial to consider its
relationship with monetary policy as well.