Quiz 19: Heterodox Theories in Economics
National economy Political set-up of each national economy is different. Each national economy has its own rules of the game; own law and order, regulations, customs, and conventions for conducting economic activity. Each national economy's achievement targets are different according to the best interests of its citizens. The indicators of national economy, such as gross domestic product, gross investment, and gross saving, provide a measure of the performance of the national economy and its relation with the other economies to the rest of the world.Economic fluctuation of a state or province may not affect the economic condition of the national economy as a whole to a greater extent because there can be several states or provinces within a nation. The bad economic situation of a state can be counter-balanced with the economic condition of a better-performing state.However, the severity of the reverse phenomena is high, as the bad economic condition of a national economy will affect the economic condition of all states within it. Thus, economists would pay more attention to national economics than to the state or province.
Parallels between human body and an economy: One can describe the parallels between medicines that the human body needs to recover from illness and an Economic mechanism that an economy adopts to overcome the worse economic scenario, such as inflationary pressure or deflationary pressure.Just as medicine is injected into the human body to overcome the alien effects, monetary and fiscal policies play vital roles in the stabilization of an economy. Since monetary policy controls the money supply, it has greater impact on the supply side. However, fiscal policy controls the demand side through tax revenue or public expenditure.The parallels can be drawn between the dosages of medicine administered to an individual after diagnosing his/her illness and administering interest rate hike or cut after assessing the inflationary or deflationary tendency in an economy. While the interest rate over the years is a flow variable, the interest rate for a particular period is a stock variable.
Stock variables: Stock variables are generally measured at a particular point of time or at a given point of time. Stock variable can be referred to the amount of money at some place, such as deposit of amount $2000 in your bank account. In time series analysis, point estimate of a particular variable at a particular point of time is called stock. Examples: Wealth, deposits , capital stock or inventory of a manufacturing firm, current account balance of an individual and cash in hand, etc.Another example is everything in the balance sheet of a company, such as amount of assets and liabilities, finished and unfinished goods, stock of raw materials are considered as stock variable.Flow variables: Flow variables are measured over a period of time or over an interval. In other words, amount of money, such as income received during a period of time could also be considered as a flow variable.In time series analysis, flow variables are the interval estimates. Examples: Monthly income, savings and expenditure of an individual, monthly or annual budget, interest on fixed deposits or savings, everything in the profit and loss statement is a flow variable.