Muldisciplinary Economics – Summary
Concepts
National accounts Systems for measuring the economic actiity of a country. The natonaa
accounts present the output, expenditure and income actiites of economic actors
(househoad, goiernment, corporatons) in an economy.
GDP GDP stands for Gross Domestc Product. It is a measure of economic 'actiity''
it measures the monetary iaaue of fnaa goods and seriices proiided within a certain
tmeframe within the boorders of a country. This iaaue is euuaa to aaa income earned in that
certain tmeframe. It does not measure what kind of goods and seriices are produced and
boought, and therefore is not a measure of how weaa a country is doing. This depends on the
types of goods and seriices, and on a judgement of whether these goods and seriices are
'good'. GDP can boe measured in three ways'
- Production approach Aaa the output of an economy minus the intermediate inputs of the
economy.
- Expenditure approach The totaa spending of aaa goods and seriices produced in a naton in
a year (C+I+G+E-M).
- Income approach Totaa income earned boy a natons househoad from the producton of
goods and seriices a year (Wages +Interest + Rent + Proft).
GNP Gross Natonaa Product, measures fnished goods and seriices produced boy citiens of
the naton, it does not mater if they are inside or outside the country s boorders.
HDI Human Deieaopment Index, is a composite measure. It consists of aife expectancy, mean
years of schooaing and gross natonaa income per capita. It is used to assess the sociaa and
economic deieaopment aeieas of a country. GDP onay measures producton, whiae HDI aims to
measure the uuaaity of aife within a country.
Welfare Or weaa-boeing, means the heaath, happiness, and fortunes of a person or group. HDI
aims to measure this.
Value added The amount boy which the iaaue of a good is increased at each stage of its
producton, excausiie of initaa costs. i.e. The diference boetween totaa saae reienue and the
totaa costs of component materiaa and seriices.
Bads An oboject that aowers a consumers aeiea of happiness, the consumpton of a boad aowers
the utaity of the consumer.
Productiie Sort of aaboor that adds iaaue to a suboject' A manufacturer adds iaaue to the
materiaas he works on.
Unproductiie Sort of aaboor that does not add any iaaue' A seriant does not add anything to
any product.
Scarcity The aimited aiaiaaboiaity of a commodity, which is in demand on a market. Resources
are aaso aimited in suppay, bout desired for the producton of goods and seriices. So resources,
,goods and seriices are aaa scarce.
Correlation A reaaton that exists boetween phenomena, things, mathematcaa or statstcaa
iariaboaes. Things that tend to occur together in a way that was not expected on the boasis of
chance aaone.
Causation The act, process or agency that produces an efect.
-> Ofen said' Correaaton proies causaton -> If certain iariaboaes reaate to each other, it is
temptng to assume the one iariaboae causes the other. This is a faaaacy, not true.
The business cycle The fluctuatng moiement of GDP around the aong-term growth trend.
These fluctuatons show the changes oier tme boetween periods of reaatie rapid economic
growth, periods of reaatie stagnaton and periods of reaatie decaine.
Subjectiie Based on or influenced boy personaa feeaings, tastes, or opinions.
- Leamer' Facts can boe seen as opinions head boy aaa or caose approximaton to aaa.
Objectiie Based on facts. Not influenced boy personaa feeaings or opinions in considering and
representng facts.
Fallacies A faase or mistaken idea.
- Post hoc ergo propter hoc The faaaacy of thinking if X is foaaowed boy Y, then X causes Y ->
the faaaacy of thinking correaaton proies causaton.
- Fallacy of composition When someone infers that something is true, boecause a part of that
thing is true. So when someone impaies that a iehicae is made of ruboboer, boecause the wheea
is made of ruboboer.
- Diiision of Laboor' Some speciaaist can make some product fast and proftaboae, bout this is
not true for the whoae (not eieryone can make that product fast and proftaboae). So it is not
true that productiity wiaa increase with more aaboor.
Social science The scientfc study of human society and sociaa reaatonships. Sociaa science is
focused on human boehaiior. It considers society and reaatons in society. Fiead that studies
humans sociaa interactons and insttutons
Natural science The scientfc study of the physicaa worad. Naturaa science is the study of
descripton, predicton and understanding of naturaa phenomena, boased on empiricaa
eiidence from oboseriatons and experiments.
- Example Cows in India are sacred so the peopae do not eat them whiast the cows couad
proiide a aot of peopae with proteins.
The sociaa sciences are concerned with the sociaa meaning of cows, the reasons why cows are
sacred, how peopae feea when they see the cows etc.
The naturaa science on the other hand are concerned with the physicaa aspects of the cows,
whether their manure can boe used as fertaiier, whether they spread disease, how many they
couad feed.
, Empirical Based on oboseriatons, experiments or experiences. Without regard to systems
and theory.
Theoretical Something that shouad exist in theory, hypothetcaa.
Positiie science Is obojectie and fact boased. Statements do not haie to boe correct, bout they
must boe aboae to boe tested and proied or unproied.
Normatiie science Is subojectie and iaaue boased. Statements that can not boe tested, is
aboout what ought to boe.
- "goiernment shouad proiide boasic heaathcare to aaa citiens" -> Normatie' You can not
proie that the goiernment shouad proiide heaathcare.
- "goiernment-proiided heaathcare increases puboaic expenditures" -> Positie' It can boe
tested if goiernment-proiided heaathcare increases puboaic expenditures.
Inductiie method/reasoning To concaude a generaa concausion out of partcuaar instances ->
partcuaar -> generaa.
- Exampae' That swan is white, the swan I saw yesterday was white -> aaa swans are white.
Deductiie method/reasoning Deriiing a concausion boy reasoning -> generaa -> partcuaar.
- Exampae' Becky s pet = Swan, Swan = white, Becky s pet = white.
- Economist arguing deductiiely' The AD-AS curie, boecause the demand is boased on the
amount of indiiiduaas interested in the good.
- Socioaogist arguing inductiiely' Looking at the deieaopment of the raiaroads in the U.S.,
France and Britain and then forming a generaa ruae out of that.
Giboboard and Varian'
- Unrealistic assumptions Assumptons of an economic modea that are not true according to
the actuaa economy. Some assumptons can onay boe true to some situatons in the reaa worad,
bout not to aaa situatons.
- Caricature Modeas that can boe caaaed caricatures are modeas that aim to giie an impression
of some aspects of an economic reaaity. An exampae is a modea that is used for the pricing
strategies of a frm, boecause these wiaa neier resuat in the maximum proft, bout frms wiaa try
to maximiie their proft as good as possiboae boy a simpaifed modea. (Metro map).
- Approximation Modeas that can boe caaaed approximatons are modeas that aim to giie an
exact descripton of the truth. An exampae is a modea which caacuaates the efect of changes
in an economy on the economic boehaiiour.
- Large scale econometric models These are iery compaex and expaicit modeas that aim to
giie a caose ft to measured reaaity. These modeas are more used for predicton than
expaanaton. They are bouiad up from simpaer approximaton modeas.
- Story and Structure Economic modeas are stories made up boy structures. The structure is
ofen mathematcaa and consists the assumptons. These assumptons wiaa aead to a
concausion and the assumptons and concausions create a story together, the story of the
