Introduction To The National Economy
Overview
A committee of nine people meets in a room, votes, and announces a number. Within hours the cost of every mortgage, every business loan and every overdraft in the country has moved, and so has the reward for leaving money in a savings account. Nobody was ordered to spend less or invest more. One price changed, and the whole economy leaned.
This lesson introduces the two levers that reach every household and every firm at once: the interest rate, and the government's own income and spending. You will learn what an interest rate actually is and how a change in it pulls consumers between saving, borrowing and spending, and firms between saving, borrowing and investing. You will also meet the arrangements used in sharia compliant finance, where charging interest is not permitted. Then you will turn to the government's accounts: where its money comes from, where it goes, and why two taxes that raise the same amount can fall very differently on rich and poor.
Objectives
- Interest rates including sharia compliant alternatives Students should be able to understand:
- How interest rates affect consumers’ decisions to save, borrow or spend
- How interest rates affect producers’ decisions to save, borrow or invest
- Government income and expenditure
- Government revenue and spending
- Indirect and direct taxation
- Progressive and regressive taxation
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Flashcards
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Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on Introduction To The National Economy. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- What term describes a tax that takes a higher percentage of an individual's income as their income rises? A. Direct B. Indirect C. Progressive D. Regressive Answer: C
- Which of the following shows the most likely impact on a producer of a fall in interest rates? A. Cost of borrowing decreased, investment increased B. Cost of borrowing decreased, investment decreased C. Cost of borrowing increased, investment increased D. Cost of borrowing increased, investment decreased Answer: A
- Which of the following is an indirect tax? A. Corporation tax B. Excise duty on fuel C. Income tax D. Inheritance tax Answer: B
- A saver deposits $6,000 at an annual interest rate of 2.5%. How much interest is earned in one year? A. $15 B. $150 C. $1,500 D. $6,150 Answer: B
- What does it mean if a government has a balanced budget? A. Total government revenue is equal to total government spending B. Total government revenue is greater than total government spending C. Total government spending is greater than total government revenue D. The government has no debt Answer: A
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Recommended Books
Further learning from open sources
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Textbook section
Taxation
Differentiate among a regressive tax, a proportional tax, and a progressive tax
"Principles of Economics 2e: Taxation" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/principles-economics-2e/pages/30-2-taxation. Access for free at https://openstax.org/books/principles-economics-2e/pages/1-introduction
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Textbook section
Demand and Supply in Financial Markets
Identify the demanders and suppliers in a financial market
"Principles of Economics 2e: Demand and Supply in Financial Markets" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/principles-economics-2e/pages/4-2-demand-and-supply-in-financial-markets. Access for free at https://openstax.org/books/principles-economics-2e/pages/1-introduction
Published by other organisations under open licences, credited as they ask. Links open their websites.
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