ECONOMY 4TH ESO - Created by Antonio Ginés - 1/41



    1. Economy in our daily life.- We are constantly making economic decisions. For example, when we choose to buy a magazine and stop buying another thing or when we decide to save to buy the latest model of the console that we like instead of spending the money now on something else.

    2. Economics as a science.- Economics is a science that studies human behavior in society as the relationship between aims and limited means that have alternative applications.

    3. Scarcity.- Scarcity implies that there aren’t enough resources to produce enough to cover all needs. Scarcity also implies that all the objectives of society can’t be satisfied at the same time, therefore it’s necessary to follow a priorities policy.

    4. Human needs.- Human needs are unlimited since, who doesn’t have a car wants to have one, even if it’s an urban one; when you get the urban, you want to have a superior one, for example a compact, when you get the compact you want to have a better one, for example a minivan. Even when you have a good car, youe want to have a little one to drive around town. Ultimately, we always want more, we never are content with what we have.

    5. Goods and services.- Companies, with their operation, produce goods or provide services to their customers. Goods are tangible (eg a chair, a computer, a motorcycle), while services are not (eg education, health, security).

    6. Difference between Microeconomics and Macroeconomics.- While Microeconomics studies the economic behavior of individual economic agents such as domestic economies or families and companies, Macroeconomics is responsible for the general study of the economy of an autonomous community, a country or of a trade bloc like the European Union

    7. Difference between positive economics and normative economics.- While positive economics indicates “what is”, normative economics indicates “what should be”. For example, while positive economics says: "if interest rates fall, people ask for more loans," normative economics indicates whether or not interest rates should be lowered, depending on the current economic situation.


    1. Definition of economic agents.- They are the people or groups that carry out an economic activity

    2. Types of economic agents.-

      1. Families or households.- They make the decisions about what to consume and are the owners, they have most of the rest of the production factors (K and W)

      2. Companies.- They make decisions about what to produce, how to produce and distribution

      3. Public sector.- It is made up of different public administrations and other public entities (including public companies). It takes part in the economy in three ways:

        1. Creating laws that regulate the way in which other economic agents act when they go to the market

        2. Redistributing income from those who have the most to those who have the least

        3. Offering, at a lower price or for free, goods and services that society thinks the entire population should receive (education and health)


    1. Definition.- It’s what an agent loses when making a decision

















    2. Cannons-butter.- When individuals are grouped together in societies, they face different types of dilemmas. The classic is the dilemma between "cannons and butter." The more we spend on national security to protect our coasts from foreign aggressors (cannons), the less we’ll spend on personal goods to improve the standard of living in our country (butter)

    3. Pollution-rent.- In modern society, the dilemma between a clean environment and a high level of income is also important. Legislation that forces companies to reduce pollution raises the cost of producing goods and services. Higher costs can create lower company profits, lower wages, higher prices, or all three at the same time.


    1. Definition.- It’s the group of productive factors or combinations of technologies that reach maximum production. It reflects the maximum quantities of goods and services that a society can produce in a given period of time and with given production factors and technological knowledge.

    2. Situations that can occur in the productive structure of a country.-

      1. Inefficient productive structure.- Being under the PPF means that either not all resources are used (idle resources) or the technology is not adequate (technology that can be improved). A country with an unemployment rate above 5% will always find itself in this productive structure, because there is unused labor available.

      2. Efficient production structure.- It’s located on the border or very close to it. There are no idle resources and the best technology is used.

      3. Unattainable productive structure.- It is located above the Production Possibilities. It’s theoretical because no country can produce more than is possible, indefinitely (overtime could temporarily achieve higher production levels)

    3. Form of the PPF.- It is concave and decreasing. This form is due to two reasons:

      1. Decreasing.- To produce more of one good it’s necessary to produce less of another

      2. Concave.- The opportunity cost is increasing

    1. Displacement of the PPF.- It’s movable, that is, unreachable points can be reached. Displacement may be due to technological improvements, an increase in capital, an increase in workers, or the discovery of new natural resources.In this case, displacement affects the production of both goods equally. However, different cases can arise. For example, if the displacement is due to the immigration of untrained individuals, they can be expected to join companies engaged in low-skilled manual activities such as those related to agriculture. If the displacement is due to a new technology, it could also be thought that it affects some sectors more and others less. Therefore, the expansion of production possibilities are not the same in all cases. We can reflect on a graph like the previous one how the displacements would be.


    1. Capitalism (emerged in Europe in the 16th century) .-

      1. Features.-

        1. Capital over labor.- Capital dominates over labor as an element of wealth production

        2. Priority of profit.- Profit is the guide of economic action for capital accumulation

        3. Private ownership.- Ownership of the means of production is in the hands of the families

        4. Economy determined by the free market.- The distribution, production and prices of goods and services are usually determined by the interaction of supply and demand

        5. Free enterprise.- Each company is freely dedicated to what it decides to produce with no limitations other than the qualification requirements necessary to carry out that activity

        6. Non-intervention.- The State limits itself to intervening in very specific cases

    2. The centrally planned economy.-

      1. The state organization.- The production factors are in the hands of the State, which is the only important economic agent. The market doesn’t allocate resources, because it’s manipulated by the State. These manipulations are made with multi-year economic plans (five-year plans), which explain in great detail the supply, production methods, salaries, investments in infrastructure,. . .

      2. Main problems.-

        1. Forecast errors.- The market doesn’t send signals because it doesn’t exist (false market). Without signals, the planners weren’t always correct in their forecasts and this caused a lack of adaptation to reality and a poor reaction capacity

        2. Low motivation.- Because wages and prices were set by the State, companies didn’t need to be competitive and workers were unmotivated, because they earned the same if they did their job well or badly.

        3. Excessive bureaucracy.- Planning required a huge bureaucracy at the service of the State, so decisions and reaction capacity were slower.

    3. Mixed economy.- In reality, there is no country with a totally market or centralized economy, but more or less a combination of both in increasing or decreasing degree.

    4. Particularities of the Andalusian economy.- The Andalusian economy, like the Spanish economy, has a mixed economy system with great importance placed on the market economy.


    1. Relationship between families and companies.-

      1. The real flow that goes from the companies to the families is the goods and services and, as a counterpart, the monetary flow that goes from the families to the companies is the consumption expenses

      2. The real flow that goes from families to companies are the production factors and, as a counterpart, the monetary flow that goes from companies to families are wages, income, dividends, etc.

    2. Relationship between families and businesses and the government.-

      1. The real flow that goes from the State to families and companies is goods and services and, as a counterpart, the monetary flow that goes from families and companies to the State is taxes.

      2. The real flow that goes from families and companies to the State is work and, as a counterpart, the monetary flow that goes from the State to families and companies is wages.

  3. DEFINITION OF THE COMPANY.- A company is a set of human, material, financial and technical factors organized and driven by management, which tries to achieve objectives in accordance with the purpose previously assigned


    1. Capitalist entrepreneur or business owner - Early 19th century

    2. Innovative entrepreneur (Shumpeter) .- He is capable of launching a new business opportunity taking advantage of an invention or an unexploited idea (it isn’t who invents it but who exploits it)

    3. Entrepreneur who assumes risks (Knigth) .- He has expenses that he will recover or not

    4. Galbraith's technostructure.- In new large companies, the ones who actually hold business power are not the partners of the company but the senior managers who control it

  5. ENTREPRENEUR.- An entrepreneur is a person who organizes and runs a company, usually with a lot of initiative and risk. Instead of working as an employee, an entrepreneur creates a small business and takes the risk. The entrepreneur is seen as an innovative leader with new ideas and processes. Entrepreneurs tend to be good at perceiving new opportunities and often have positive trends in their perception (eg, a tendency to find new possibilities and see market needs that haven’t yet been addressed) and a tendency to take risks which makes it more likely that they will exploit the opportunity. The innovative spirit is characterized by innovation and the acceptance of risk. While entrepreneurship is often associated with startups, small and for profit, entrepreneurial behavior can be seen in small, medium and large, new or established companies, and in for-profit and non-profit organizations, including the voluntary sector, charities and governments. For example, in the 2000s, the field of social entrepreneurship has been identified as one in which entrepreneurs combine business activities with humanitarian, environmental, or community goals.


    1. Company functions.-

      1. Directive.- Decides how the objectives of the company will be achieved through planning, organization, coordination and control

      2. Technical or production.- Performs activities for the manufacture of goods or the provision of services

      3. Research and development.- Improvement of methods and programming and launch of work plans

      4. Financial.- Get the necessary financial resources

      5. Human resources management.- Select, hire, train, motivate and promote staff

      6. Purchases.- Acquisitions

      7. Commercial.- Sell

      8. Administrative.- Control the documentation

    2. Goals.-

      1. Economic or profitability.- Maximum benefit

      2. Growth.-

        1. Intensive.- In a new area (SEAT enters Russia); a very similar product (SMART)

        2. Integrated.- In another phase of the same production process

          1. Backwards.- CALVO - Fishermen

          2. Forwards.- CALVO - HIPERCOR

          3. Horizontal.- CONTINENT AND PRYCA IN CARREFOUR

        3. Diversified.- Another activity (BMW produced aircraft engines and began to manufacture cars)

      3. Social.- Cover social needs (ecology, security, help to people in need, etc.)


    1. According to their economic activity.-

      1. Commercial.- They buy and sell products without transformation

      2. Industrial.- Transform products

      3. Services.- They provide services

    2. According to the economic sector to which they belong.-

      1. Primary sector companies.- Extractive activities (agriculture, livestock, fishing, mining, etc.)

      2. Secondary sector companies.- Industry and construction

      3. Tertiary sector companies.- Services

    3. According to its size.-

      1. By number of workers.-

        1. Microenterprise.- From one to five workers

        2. Small business.- From six to fifty workers

        3. Medium-size company.- From fifty-one to five hundred workers

        4. Large company.- More than five hundred workers

      2. Other criteria to measure the size of companies.-

        1. Own resources or Net Equity

        2. The active

        3. Production volume

        4. The sales figure

        5. The use of factors of production (in addition to the number of employees)

        6. The benefits

        7. One multi-criteria value (using several at the same time)

    4. According to the ownership of the capital.-

      1. State-owned.- The capital is in the hands of the State

      2. Private-owned.- The capital is in the hands of individuals

      3. Mixed.- Part of the capital is in private hands and part is of the State

    5. According to the geographical area.-

      1. Local.-

      2. Nationals.-

      3. International.-

    6. According to its legal form.-

      1. Individual entrepreneur.- It’s that natural person who, having the necessary legal capacity, regularly exercises a business activity on his own account.

      2. Individual Limited Liability Companies (EIRL).- They are legal persons, formed exclusively by a natural person, with their own assets and different from that of the owner, who carry out activities of a purely commercial nature (not second category activities). The EIRL are subject to the rules of the Commercial Code, whatever their purpose, being able to carry out all kinds of civil and commercial operations, except those reserved by law for Public Limited Companies (SA).

      3. Communities of goods.- It consists of a group of individual entrepreneurs who share some good

      4. Civil companies.- Are those that, without being public limited companies or limited liability companies, carry out an activity that can’t be industrial or commercial (eg a law firm)

      5. Partnership.- The partners, who can be capitalists or industrialists, have unlimited liability. They have no minimum capital.

      6. Limited partnership.- General partners have unlimited liability while limited partners have limited liability. They have no minimum capital.

      7. Limited partnership by shares.- They are a mix between the limited partnership and the public limited company.

      8. Limited liability company.- The partners have limited liability.The minimum capital is €3,000.

      9. New company limited liability company.- It’s a specialty of the limited liability company. The minimum capital of €3,000 and the maximum of €120,000.

      10. Public limited company.- The partners have limited liability. The minimum capital is € 60,000.

      11. European public limited company.- It is a specialty of the public limited company.

      12. Listed public limited company.- These are public limited companies that are listed on the Stock Market.

      13. Labor companies.- They can be labor limited liabilities companies or labor public limited companies. Most of the capital must be in the hands of working partners of the company with an indefinite contract and no partner can have more than a third of the capital stock.

      14. Cooperatives.-They don’t have profit motive. In principle, the partners have limited liability. They can be for work, housing, transportation, consumption, credit, etc.



    1. According to its origin.-

      1. Internal financing or self-financing.-

        1. Definition.- Internal financing is the name for a company using its profits as a source of capital for new investments, instead of: a) distributing them to the owners of the company or other investors and b) obtaining capital elsewhere.

        2. They are.- They are amortizations and reserves

      2. External financing.-

        1. Definition.- External financing consists of new money from outside the company brought in for investment.

        2. They are.- They are the capital and liabilities

    2. According to who is the owner of the resources.-

      1. Own resources.-

        1. Definition.- Equity is the asset minus the liability

        2. They are.- They are the capital, amortizations and reserves

    3. Third-party resources.- They are the liability


    1. Is it cheap or expensive? .-It’s thought that internal financing is generally less expensive for the company than external financing because the company doesn’t have to incur transaction costs to obtain it, nor does it have to pay the taxes associated with the payment dividends.

    2. Is it decisive or not?- Many economists debate whether the availability of internal financing is an important determinant of the company's investment or not. A related controversy is whether the fact that internal financing is empirically correlated with investment implies that firms are obligated to credit and therefore depend on internal financing for investment.

    3. Options for self-financing.- There are several options for a company to finance itself without external help:

      1. Amortization.- Deduction of the value of the asset, reduces the profit before taxes

      2. Create reserves.- Eg pension reserves

      3. Withhold profits.- Profits are not paid to the owners of the company

      4. Change asset.- Selling real estate or other tangible assets owned by the company

    4. Advantages of internal financing.-

      1. Capital is immediately available

      2. No interest payments

      3. No control processes with regard to solvency

      4. Replacement credit line

      5. No influence of third parties

    5. Disadvantages of internal financing.-

      1. Internal financing is not tax deductible

      2. No capital increase

      3. Not as flexible as external financing

      4. Losses (capital reduction) are not tax deductible

      5. Limited in volume (the volume of external financing is also limited but there is more capital available outside - in the markets - than within the company)

    6. Types of internal financing or self-financing.-

      1. Maintenance self-financing.- They cover the depreciation of assets (amortizations and provisions)

      2. Enrichment self-financing.- Increase the company's assets (reserves)


    1. Capital.-

    2. Passive.-

      1. Operating credits.- They are short-term credits and finance current assets.

      2. Financing credits.- They are long-term credits and finance non-current assets


    1. Commercial credits.- Normally the providers allow us to pay them in thirty, sixty or ninety days for which, it’s as if they were lending us money during that time.

    2. Short-term loans.- The user receives the total amount agreed from the beginning, forcing him to return this and all interest on certain days established before.

    3. Credit accounts.- The bank allows the customer a credit for a certain period of time and up to a certain amount, forcing the customer to pay a commission and return the desired amounts within the stipulated time limit.

    4. Discount of bills.- The bank advances to a person the amount of a commercial bill (bills of exchange and promissory notes).

    5. Factoring.- Factoring is a financial transaction through which a company sells its collection rights (eg invoices) to a third party (called factor) at an interest in exchange for immediate money with which to finance lasting businesses. It's expensive


    1. Long-term loans.-

    2. Issuance of bonds.- It is a very large loan divided into titles called bonds. It’s usually three or five years.

    3. Own financing.- Mainly capital and reserves


    1. Taxes; elements and definitions.-

      1. Taxable event.- It’s the reason for which the tax obligation arises

      2. Taxable base.- It’s the quantification of the taxable event

      3. Net taxable base.- It’s the taxable base minus deductions, reductions and compensations

      4. Tax rate.- It’s the percentage that is applied to the net taxable base to calculate the tax quota

      5. Tax quota.- It’s the result of applying the tax rate to the net taxable base

      6. Tax debt.- It’s the tax rate plus surcharges and minus bonuses

    2. Types of tributes.-

      1. Fee.- A fee is a tax whose taxable event consists of the private use or special use of the public domain, the provision of services or the performance of activities under public law that refer, affect or benefit the obligated party in a particular way, when the services or activities aren’t voluntarily requested or received by the taxpayers or aren’t provided or carried out by the private sector. Eg we pay a fee when we get the DNI.

      2. Special contributions.- They are the taxes whose chargeable event is the acquisition by the taxpayer of a benefit or an increase in value of their property as a result of public works or the establishment or expansion of public services. Eg we pay a special contribution if they renew the pavement of our street.

      3. The Value-Added Tax.- The VAT is an indirect tax on consumption, that is, financed by the final consumer. An indirect tax is the tax that isn’t received by the treasury directly from the taxpayer. VAT must be collected by companies at the time of any sale of products (transfer of goods and services). Companies have the right to be reimbursed the VAT that they have paid to other companies on purchases made in exchange for invoices (tax credit), subtracting it from the amount of VAT charged to their customers (tax debit), having to deliver the difference to the treasury. End consumers are obliged to pay VAT without the right to reimbursement,

      4. Personal Income Tax.- Personal Income Tax is a personal, progressive and direct tax levied on the income obtained in a calendar year by natural persons residing in Spain. It’s the most significant pillar of the tax system.

      5. Corporate Tax.- It’s as periodic, proportionate, direct and personal tribute whose taxable income is obtained by legal persons and other entities without personality. Taxes the income of companies and other legal entities. It’s applied throughout the Spanish territory, with the exception of the Basque Country and Navarra (by means of a concert).

      6. Tax on Patrimonial Transmissions and Documented Legal Acts.- It’s a tax that levies: a) the transmissions of goods for consideration that aren’t taxed by the Value Added Tax, b) the formalization of certain notarial, commercial and administrative documents in Spanish territory or abroad that take effect in Spain and c) the constitution, increase and decrease of capital, merger, spin-off and dissolution of companies, the contributions made by the partners to replace social losses and the transfer to Spain of the headquarters of effective address or registered office of a company.

      7. Real Estate Tax.- The RET is a tax that levies the value of the ownership and other real rights that fall on real estate located in the municipality that collects the tax. Its management is shared between the State Administration and the City Councils.

      8. Tax on Economic Activities.- The TEA is a tax that is directly levied on the performance of any type of economic activity, both natural and legal persons. Unlike other taxes, its amount is constant regardless of the balance of the activity. It’s a direct, mandatory, proportional, real and shared management tax.


    1. Definition.- They are resources, material or not, that when combined in the production process add value in the production of goods and services

    2. Evolution of the concept.-

      1. Classical economists.- They use the three factors that Adam Smith defined, each factor participates in the result of production through a reward set by the market:

        1. Land (which is rewarded with rent)

        2. Work (which is rewarded with wages)

        3. Capital (which is rewarded with interest)

      2. Neoclassical economists.- They only use capital and labor because they simplify their economic analyzes. The land is considered included within the capital

      3. Current economy. New production factors.-

        1. Natural capital (land).- Today the land is considered a component of capital or a component of a broader natural factor (natural resources or natural capital).

        2. Physical capital.- Understood as tools and machinery

        3. Material work.- Non-intellectual work

        4. Intangible capital (know-how, organization, non-physical but computable assets, intangible work, knowledge economy) .- Fourth production factor.


    1. According to the segment where the product is directed.-

      1. Production by order.- The product has been manufactured because the client has ordered it

      2. Production for the market.- The product has been manufactured for the market in general.

    2. According to the degree of differentiation of the product.-

      1. Mass production.- All products are the same

      2. Individualized production.- Each product is different

    3. According to the continuity of the production process.-

      1. Continuous process.- The activity doesn’t stop

      2. Discontinuous process.- The activity ends with the manufacture of the product and begins again when we make another product (eg the construction of an industrial unit)


    1. Definition.- The average product is the amount of product units obtained for each unit of factor used

    2. Other definitions of productivity.-

      1. Production/resources.- It’s the relationship between the production obtained by a system of production or services and the resources used to obtain it.

      2. Results/time.- It can also be defined as the relationship between the results and the time used to obtain it: the less time used to obtain the desired result, the more productive the system.

      3. Outputs/Inputs.- It is the relationship between the outputs and the inputs of a system

    3. Productivity-profitability.- Greater productivity using the same resources or producing the same goods or services results in greater profitability for the company. Therefore, the quality management system tries to increase productivity.

    4. Types of productivity.-

      1. One factor productivity.- It is the relationship between the amount obtained from a product and the amount of factor that has been used for its production

      2. Global productivity.- It’s the relationship between the monetary value of the production of a period and the monetary value of the amount of resources used to achieve it.

    5. Improved productivity.- It is obtained by innovating in:

      1. Technology (for example, the Internet)

      2. Organization (for example assembly line)

      3. Human resources (through training)

      4. Labor relations (improvement of labor legislation)

      5. Working conditions (for example, occupational health)

      6. Other


    1. Difference.- While efficacy consists in achieving the objectives in any way, efficiency consists in achieving the objectives with the greatest possible economy of means.

    2. Example.- For example, an office worker will be effective if he writes a personalized letter to each of the hundred clients of the company to inform them of our offers and our products (which takes him three hours without stopping). Another clerk would be efficient if he combined the database with customer data with a sample letter (which takes him fifteen minutes).

  11. RESEARCH, DEVELOPMENT AND INNOVATION.- In the knowledge economy and business development produced since the end of the 20th century, people consider that technology and science (what has been called R + D - Research and Development - or even R + D + i - Research, Development and Innovation -) is a fourth factor of production that characterizes more and more production in industrialized countries. At the same time, the concept of physical capital or financial capital is added to the concept of human capital or intellectual capital, even social capital, as a way of explaining the improvement in productivity that isn’t due to the other factors.


    1. Total costs.- Are those that a company has in a production process or activity. They are the sum of the fixed costs and the variable costs: TC = FC + VC

    1. Fixed costs.- They are invariable if the quantity produced has small changes. Fixed costs are connected to the productive structure and for that reason they are called structural costs, and they are used to make reports on the degree of use of that structure. Example: If we make more bread, we won’t pay more rent for our industrial unit.

    2. Variable costs.- They change if the activity level changes. That is, if the level of activity decreases, these costs decrease, and if the level of activity increases, these costs increase. Example: If we make more bread we need more flour. Except when there are structural changes, in the economic units - or productive units - the variable costs have a linear behavior, because the average value per unit tends to be constant. In Microeconomic Theory, variable costs are not linear, at first they grow at a more than proportional rate but after the inflection point they grow at a less than proportional rate.


    1. Overview.- In economics and business, specifically cost accounting, the break-even point is the point where costs or expenses and income are equal: there is no net loss or profit. A profit or loss has not been made, although the opportunity costs have been paid, and the capital has received a risk-adjusted return.

    1. Example.- If a business sells less than 200 tables each month, it will make a loss, if it sells more, it will make a profit. With this information, the manager will then need to see if they expect to be able to make and sell 200 tables per month.

    2. Implementation.- If they think they cann’t sell that much, to ensure viability they could:

      1. Fixed costs.- Try to reduce fixed costs (renegotiating the rent for example, or maintaining better control of telephone bills or other costs)

      2. Variable costs.- Try to reduce variable costs (the price you pay for tables by finding a new supplier)

      3. Price.- Increase the sale price of your tables.

    3. Either.- Any of these would reduce the break-even point. In other words, the business wouldn’t need to make as many tables to ensure that it could pay its fixed costs.

    4. Calculation.- In the linear model of cost, volume and profit analysis, the break-even point, in terms of units sold (Q) can be directly calculated in terms of total revenue (I) and total costs (TC) as:


      2. where:

      3. CF are the fixed costs

      4. P is the price of the unit sold, and

      5. CVu is the unit variable cost

      6. The amount (P - CVu) is of interest in its own right, and is called the Unit Contribution Margin: it is the marginal benefit per unit


    1. Primary Sector.- It has the lowest percentage of total production but it has a great relative importance with the other productive sectors. This importance is greater if we compare it with the primary sector of other Western economies, where it has been reduced to a minimum. The primary sector produces 8.26% of the total and employs 8.19% of the working population. It’s an uncompetitive sector since other economies with a much smaller working population produce much more. To this relative importance of the Andalusian primary sector must be added its long tradition in Andalusia, where it is deeply rooted. The primary sector can be divided into a series of subsectors: agriculture, fishing, livestock, hunting, forest resources, mining and energy.

    2. Secondary sector.-

      1. Industry.- The development, in the 19th century, of the industries linked to mining extraction (Garrucha and Carboneras, Riotinto, El Pedroso, Peñarroya and Linares - La Carolina) failed. At the beginning of the 21st century, although there is a greater integration between mining extraction and industrial transformation, this is still insufficient and incomplete. The shortage of energy products causes a strong dependence on imported oil, although Andalusia has great potential for the development of renewable energy, especially solar energy and wind energy. There are other less important industries such as automotive, aeronautics, etc.

      2. Building. - At the beginning of 2008 the international financial crisis got much worse, banks had a fall in their profits, and the stock market had sharp falls. In this context, the construction industry begins to show obvious signs of crisis: a sharp drop in sales, a drop in housing prices, a rise in non-performing loans or an increase in unemployment in the sector (for example, the half of the real estate agencies close) in February 2008, the Spanish economy shows obvious symptoms of economic crisis, because unemployment has the highest growth in the last 25 years.

    3. Tertiary sector.- This sector has had a very important growth in the last decades. It was a minority and is now a majority in Western economies. This process has been called outsourcing of the economy and has been very important in the Andalusian economy. In 1975 the tertiary sector produced 51.1 of Andalusian gross added value (GVA) and employed 40.8%, while in 2007 it produced 67.9% of GVA and 66.42% of jobs. However, this growth in the tertiary sector was earlier than in other developed economies and was independent of the industrial sector.



    1. Barter or exchange.-

      1. Definition.- Buy or sell using a product or service instead of money as a bargaining chip, that is, buying or selling without using cash.

      2. Origins.- Its beginnings go back to the first sedentary communities of human beings. These colonizers knew agriculture and herding, lived longer than their nomadic ancestors, and enjoyed better security. In addition, the first works, such as pottery or metallurgy, began to develop.

      3. Appearance of the coins.- New products brought new needs that were impossible to satisfy in an autocratic society (political concept that means an undemocratic government and, normally, entails an economy closed to the outside). Therefore began bartering: with the need to exchange what was owned for what was necessary. Although, at times, many intermediate exchanges were necessary to satisfy needs. This, combined with the growth of settlements and the expansion of commercial networks, facilitated the appearance of the concept of "coins" (which were initially bags of salt).

      4. Disappearance of barter.- In spite of everything, barter didn’t disappear with the arrival of coins. In Ancient Egypt, the monetary system and exchange lived together throughout history, the Phoenicians used it as the basis of their trading system and the native people of Latin America also exchanged their products in markets.

    2. Money.-

      1. Explanation of the appearance of money.- When exchange is frequent, barter systems quickly find the need to have some merchandise with monetary properties. This greatly facilitates trade and the permanence of families in the area, building the wealth of the place and demographic growth and giving rise to the natural process of free trade and the development of the economy.

      2. Money-merchandise.- Civilizations have adopted over the centuries various goods such as money (gold, silver, other metals or minerals, wheat, tea tablets in China, etc.) that have monetary properties, such as divisibility. , durability, etc.

      3. First money in the West.- The first historical signs that we have of money in the form of currency in the West are those of the Phoenicians.

      4. Intrinsic value.- Money in this phase had an intrinsic value. Gold and silver themselves had a value, and that is why they were exchanged. However, today, money has only value as an instrument of exchange (the paper of which a banknote is composed has no value).

      5. Issuance of money.- The states began to issue notes and coins that gave the bearer the right to exchange them for gold or silver from the country's reserves. Then fiat money appeared, which has no intrinsic value

    3. Evolution of the backing of paper money.-

      1. 18th and 19th centuries.- Many countries had a bimetallic pattern, based on gold and silver.

      2. Between 1870 and the First World War.- The Gold Standard was mainly adopted. Any citizen could convert paper money into an equivalent amount of gold.

      3. Between the two World Wars.- Countries tried to return to the Gold Standard, but the economic situation and the crisis of 1929 ended the ability for an individual to convert banknotes into gold.

      4. At the end of World War II.- The allies established a new financial system in the Bretton Woods Agreements (in July 1944 in the United States). Here it was established that all currencies would be converted into US dollars and only the US dollar would be convertible into gold bars at $35 per ounce for foreign governments.

      5. In 1971.- The expansionary fiscal policies of the United States, motivated mainly by the military spending in Vietnam, cause the abundance of dollars, which created doubts about their convertibility into gold. This is why European central banks tried to convert their dollar reserves into gold, creating an unsustainable situation for the United States. Because of this, in December 1971, the President of the United States, Richard Nixon, unilaterally suspended the conversion of the dollar to gold and devalued the dollar by 10%. In 1973, the dollar was devalued another 10%, until, finally, the conversion of the dollar to gold ended.

      6. From 1973 to today.- The money that we use today has a value in the subjective belief and legal obligation that will be accepted by the rest of the inhabitants of a country, or economic area, as an instrument of exchange. The monetary authorities and central banks of developed countries don’t attempt to defend any particular exchange rate level, but intervene in the foreign exchange market to calm speculative fluctuations in the short term, with the aim of maintaining price stability in the short term and avoid situations such as hyperinflation, which destroys the value of money leading to a decrease in confidence or, on the contrary, the opposite can also occur, that is, deflation (generalized and sustained fall in prices or loss of money value).

  2. THE EURO.- The euro (€) is the currency used by the institutions of the European Union as well as the official currency of 23 countries, including 19 of the 27 member states of the European Union (EU) collectively known as the eurozone, which are: Germany, Austria, Belgium, Cyprus, Slovakia, Slovenia, Spain, Estonia, Finland, France, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands and Portugal. The remaining 4 correspond to European microstates that have agreements with the EU, which are: Vatican City, Monaco, San Marino and Andorra. Furthermore, the euro has been unilaterally adopted by Montenegro and Kosovo. Therefore, the euro is in daily use by some 332 million Europeans. More than 175 million people around the world use currencies pegged to the euro, including more than 150 million Africans.


    1. M0.- Banknotes and coins in circulation and in bank vaults, plus reserves of commercial banks kept in their accounting at the Central Bank (minimum reserves and surplus or voluntary reserves). This is the basis from which other forms of money are created and is traditionally the most liquid measure of the money supply. M0 is usually called the monetary base.

    2. M1.- Same as M0 + demand deposits (also known as current accounts and other deposits that function as demand deposits) + traveler's checks.

    3. M2.- Same as M1 + savings deposits (savings accounts or savings books), and also fixed-term deposits of up to two years and deposits available with notice of up to three months.

    4. M3.- Same as M2 + all other long-term deposits, institutional money market funds, short-term repurchase agreements (repos), along with other more liquid assets.


    1. Definition.- Money is that good that achieves the following functions: medium of exchange, unit of account and store of value.

    2. Functions.-

      1. Medium of exchange.- When money is used to mediate in the exchange of goods and services, it’s performing a function as a medium of exchange. This avoids the inefficiencies of a barter system, such as the problem of double coincidence of needs.

      2. Unit of account.- A unit of account is a standard numerical unit of measurement of the market value of goods, services and other transactions. Also known as a "measure" or "standard" of the relative value and installment payments, a unit of account is a necessary requirement for the formulation of trade agreements that involve indebtedness. To function as a "unit of account," what is being used as currency must:

        1. Be divisible.- Divisible into smaller units without losing value; precious metals can be minted from bars, or cast into bars again

        2. Be homogeneous.- That is, a unit or piece must be perceived as equivalent to any other, for example: diamonds, works of art or real estate are not advisable as money

        3. Have a certain weight, measure or size.- A specific weight, measure or size to be accounting comparable. For example, coins are often made with ridges around the edges, so that any extraction of material from the coin (lowering its value as a commodity) is easily detected.

      3. Store of value.- To act as a store of value, a commodity, a form of money, or financial capital must be able to be saved, stored and recovered with confidence - and be predictably useful when it is recovered. Legal tender such as paper or electronic money, which is no longer backed by gold in most countries, is not considered by some economists as a store of value in exceptional situations (strong currency depreciation)

  5. ELECTRONIC MONEY.- Electronic wallet, smart cards or chip cards. They are cards that are used for small purchases and that aren’t associated with any account. If they are stolen, the thieves can only withdraw the money that is loaded on the card, which is usually small amounts; that is, they don’t have access to all the money in the current account, like normal cards.


    1. Money as a financial asset.- A financial asset is a title or an accounting entry, whereby the buyer of the title acquires the right to receive future income from the seller. The main financial assets are loans, stocks, bonds, and bank deposits.

    2. Basic characteristics of financial assets.-

      1. Liquidity.- The most liquid asset would be money, followed by the different types of deposits, commercial credits, treasury bills, loans, government bonds and, finally, government obligations.

      2. Security.- It is determined by the solvency of the issuer and the guarantees that it can present for the debtor.

      3. Profitability.- It’s the interest obtained by the holder by accepting the risk involved in the temporary transfer of money.

    3. Deposits.-

      1. Demand deposits.- Customers can have their money at any time. They are the current accounts.

      2. Saving deposits.- They work practically the same as demand deposits but they have passbooks. They are savings accounts.

      3. Term deposits.- Clients can only dispose of their money when the agreed period has passed, otherwise they should pay a penalty.

    4. Ways to mobilize money.-

      1. Check.- It’s a document by which a customer orders his bank to pay a certain amount, from his current account, to another person.

      1. Promissory note.- It’s a title by which a person (drawer or signer) is obliged to pay another (holder), or his order, an amount on a specified date and place.

      1. Bank receipt.- It’s a document issued by the bank that certifies that a service or product has been paid for.

      1. Bank transfer.- It’s an operation by which the client sends an amount of money from his account to the account of another person.

      1. Bank card.- It’s a card that the bank gives to its clients and that allows them to withdraw money, pay and carry out other operations. There are two types of cards:

        1. Debit-cards.- The client can only withdraw the money that is in his account.

        1. Credit-cards.- The client can withdraw the money in his account and a greater amount than his bank allows.

    1. Ways to save or invest.-

      1. Fixed-term deposits.- Clients can only dispose of their money when the agreed period has passed, otherwise they should pay a penalty.

      2. Treasury Bills.- They are securities (of €1,000), and issued by the Public Treasury, in monthly auction, for 3, 6, 9, 12 and 18 months.

      3. State Bonds.- These are parts (of €1,000 nominal) of a loan, for three or five years, that we make to the State.

      4. Obligations of the State.- They are similar to bonds but with a term of more than five years.

      5. Investment funds.- They are collective investment institutions, normally managed by a bank, that gather funds from different investors to invest them in different financial instruments.

      6. Savings insurance.- It’s a type of life insurance by which the insurance company undertakes to pay the insured an amount on a certain date if the insured is alive on that date.

      7. Pension plan.- It’s a voluntary system to receive financial benefits for retirement, survival, permanent disability, dependency and death that complement the Social Security.

    2. The indebtedness.-

      1. Quick lines of credit.- These are small loans that are granted by specialized companies and by banks almost immediately.

      2. Personal consumer loans.- These are loans to satisfy personal needs regardless of the client's business or professional activity and whose amount amounts to at least 200 euros.

      3. Mortgage loans.- These are loans with real guarantee, over five years, in which the asset that guarantees the payment is a property.

    3. The personal budget.-

      1. Income.- For example, payslip, income from investments made, etc.

      2. Expenses.- For example, housing, food, clothing, transportation, etc.

      3. Example of personal budget.-




























living place








































































































    1. Electronic banking.- It’s the Internet banking that allows its clients to carry out operations such as consultation of movements, transfers, purchases and sales without the need to go to a branch. There are banks that operate exclusively over the Internet and others that have branches where customers can go to physically carry out an operation but also offer their customers the possibility of carrying out these operations over the Internet.


    1. Pure risks.- They are those in which you can’t have a profit, you can only have a loss or neither loss nor gain. Example.- If we have an exit from the road with the car, two things can happen: that we have an accident and that the repair of the car amounts to €3,000 (so we will have a loss) or that nothing happens to the car or to us (so we will have neither profit nor loss).

      1. Personal.- They threaten the physical integrity of the person (eg disease)

      2. Real.- Affect movable or immovable property (eg a fire)

      3. Patrimonial.- They imply an economic loss but don’t affect physical integrity (eg civil liability -the one who commits a crime has to compensate for the damages, for which he has an economic loss-)

    2. Speculative risks.- They are those in which you can have profit, loss or neither loss nor profit. Example.- if we buy a ticket on Friday of the ONCE, which costs €3, three things can happen: that we obtain a prize of €60,000 for which we will win €59,997 (60,000 - 3), that we don’t obtain any prize for what we will lose the €3 of the ticket or that we win the refund so we will have neither gains nor losses (3-3).


    1. Certainly.- The behavior of the uncontrollable variables is known and the only problem is to select the most convenient strategy

    2. Risk.- The probability of the uncontrolled variables is known and whoever decides must combine the selection of the appropriate strategy with the probability of each situation.

    3. Uncertainty.- The probabilities of the uncontrollable variables are not known.


    1. Sympathy.- There are people who want to take risks, these people can succeed in life or they can lose everything.

    2. Antipathy.- There are people who do not want to take risks, so they will never progress in life.

    3. Neutrality.- There are other people who don’t care to take risks or not. They are in an intermediate position between the other two.


    1. Individual.- If hail spoils a harvest, the farmer experiences an economic loss that may lead him to have to leave his land and seek another profession.

    2. Social.- If no one wants to risk farming because hail can fall and end everything, society as a whole will be harmed because there will not be enough food for all people.

    3. Role of insurers.- They cover possible risks by compensating the insured with a previously agreed amount; in this way, people can dare to carry out an activity that carries some risk since if this occurs, it will not affect them in the same way as if it were not insured. For this, the insured has to pay a premium to the insurer periodically (monthly, quarterly, annually)


    1. Avoid or prevent the risk.- For example, if a clinic installs a lead screen in an X-ray room, it prevents the rays from affecting the nurses who have to do the X-rays.

    2. Reduce the risk.- For example, if we have our car in a garage instead of having it on the street, it is more difficult for it to be damaged or stolen.

    3. Transfer the risk.- For example, a farmer takes out insurance against hail, that way, if hail falls, it will be the insurance company that has the loss and not him.

    4. Absorb risk.- For example, a company creates a fund to cover possible losses for which it is insuring itself.


    1. Definition.- It’s the document that contains its conditions.

    2. Parts.-

      1. General conditions.- Information is provided on: coverage, exclusions, obligations of the insured, statements of the insured, premium and effects of non-payment, claim procedure, termination of insurance, etc.

      2. Particular conditions.- It’s informed about: insurance requirements, insured matter; details of the insurer, contractor, insured and beneficiary; object or material insured, amount insured, premium and form of payment, franchises, duration of insurance, etc.



    1. Personal insurance.-

      1. Life insurances.-

        1. Risks insurance.- The insurer agrees to indemnify the beneficiary if the insured dies before a certain date

        2. Savings insurance.- The insurer undertakes to pay the insured an amount on a certain date in the event that the insured is alive on that date.

        3. Mixed insurance.- It is a mixture of the other two.

      2. Death insurance.- The insurer is responsible for the burial or incineration expenses of the insured's dead body.

      3. Health insurance.- The insurer is responsible for the health care of the insured and his family.

      4. Accident insurance.- The insurer is responsible for the expenses caused by an accident of the insured (within certain limits).

      5. Retirement plan.- The insurer pays a benefit in the event of death, disability of the insured or termination of the insurance contract. It can be a one-time or periodic payment.

    2. Damage insurance.-

      1. Fire insurance.- The insurer pays compensation in the event of a fire on the insured property.

      2. Theft and robbery insurance.- The insurer pays compensation in the event of theft or robbery of the insured property.

      3. Transport insurance.- The insurer pays compensation in case of damage during the transport of goods.

      4. Automobile insurance.- The insurer pays the expenses caused by the insured in an accident.

      5. Multi-risk home insurance.- It’s an insurance that covers many eventualities: theft, assistance, repairs, civil liability, etc.

    3. Property insurance.-

      1. Civil liability insurance.- The insurer covers the insured's obligation to compensate for damage caused by a breach of contract or to repair the damage caused to another.

      2. Legal defense insurance.- The insurer covers the legal defense of the insured (within limits).

      3. Loss of profit insurance.- The insurer covers the loss of a legitimate profit by the victim or his relatives as a consequence of the damage, and that this wouldn’t have occurred if the damaging event hadn’t been verified (for example, the destruction of the merchandise of an entrepreneur).

      4. Credit insurance.- The insurer covers the non-payment by a debtor of the insured.

      5. Surety insurance.- The insurer undertakes to compensate the insured for the damages suffered in the event that the policyholder fails to comply with the legal or contractual obligations that he maintains with him.

  2. SOCIAL SECURITY.- There are two pension systems: public and mandatory and private and voluntary, which complement the previous ones.

    1. The benefits provided by the public Social Security system are:

      1. Contributory unemployment benefit.- 4 months of unemployment benefit are granted with the minimum unemployment contingency contribution of 360 days. From there, 2 more months of benefit are granted for every 6 more months of contributions due to unemployment contingencies, up to the maximum of 24 months of benefit for 6 years of contributions in the last 6 years. The amount of the benefit is calculated based on the unemployment contribution bases of the last 180 days of contributed work. The amount of this benefit is received once a month and is, during the first six months of protection, equal to 70% of the worker's salary in his previous job, and from the seventh month onwards, 50% of the salary

      2. Permanent disability benefit.- It’s a pension that the worker receives when he has a decrease or a disability from work. Could be:

        1. Partial for the usual profession.- It causes the worker a decrease of not less than 33% in the performance for said profession.

        2. Total for the usual profession.- Disables the worker for his usual profession but can dedicate himself to a different one.

        3. Absolute for all work.- Disables the worker for all profession or trade.

        4. Great disability.- When the permanently disabled worker needs the assistance of another person for the most essential acts of life.

      3. Benefit for death or survival.- They compensate the situation of economic need that produces, for certain people, the death of others.

      4. Retirement benefit.- It covers the loss of income that a person suffers when, reaching the established age, they cease to work as an employed or self-employed person, ending their working life, or reduce their working hours and salary in the terms legally established.

    2. Pension plans and pension funds.- It’s a voluntary system to receive financial benefits for retirement, survival, permanent disability, dependency and death that complement the Social Security. The assets that are created for pension plans are called pension funds.


    1. The budget of the State.- House of His Majesty the King, General Courts, Ombudsman, Court of Accounts, Constitutional Court, Council of State, etc.

    2. The budgets of the autonomous Bodies of the General State Administration.- Spanish Agency for International Cooperation, State Mobile Park, Traffic Headquarters, etc.

    3. The Social Security budget.-

    4. The budgets of the State Agencies.- Cervantes Institute, Spanish Data Protection Agency, National Intelligence Center, State Tax Administration Agency, National Competition Commission, Economic and Social Council, Spanish Institute of Foreign Trade, Nuclear Safety Council and Prado Museum.

    5. The budgets of public bodies, whose specific regulations confers limiting character to the credits of their budget of expenses.-

    6. The budgets of the state mercantile companies.-

    7. The budgets of the foundations of the state public sector.-

    8. The budgets of public business entities and other public bodies.-

    9. The budgets of the funds lacking legal personality.-


    1. Direct taxes and social contributions

      1. Income tax

      2. Capital gains tax

      3. Social contributions

      4. Other direct taxes

    2. Indirect taxes

      1. Value added tax

      2. Specific consumptions tax

      3. Outside traffic tax

      4. Other indirect taxes

    3. Taxes, public prices and other income

      1. Fees

      2. Public Prices

      3. Other income from the provision of services

      4. Sale of goods

      5. Refunds from current operations

      6. Other income

    4. Current transfers

      1. Of autonomous bodies

      2. Of the Social Security

      3. Of Companies, Public Business Entities, Foundations and other entities of the Public Sector.

      4. From Autonomous Communities

      5. From outside

    5. Equity income

      1. Interest on advances and loans granted

      2. Interest on deposits

      3. Dividends and profit shares

      4. Real estate income

      5. Products of concessions and special uses

    6. Sale from the real investments

      1. Of land

      2. Of the other real investments

      3. Reimbursements for capital operations

    7. Capital transfers

      1. From autonomous bodies

      2. From Autonomous Communities

      3. From the outside

    8. Financial assets

      1. Repayments of loans granted to the Public Sector

      2. Repayments of loans granted outside the Public Sector


    1. Non-financial operations

      1. Current operations.-

        1. Personal expenses

        2. Current expenses on goods and services

        3. Financial expenses

        4. Current transfers

      2. Contingency fund and other contingencies

      3. Capital operations

        1. Real investments

        2. Capital transfers

      4. Financial assets

      5. Financial liabilities (-)

      6. Transfers between subsectors

        1. Current transfers

        2. Capital transfers


    1. In general.- Directs the internal and foreign policy, the civil and military administration and the defense of the State. It exercises the executive function and regulatory power in accordance with the Constitution and the laws.

    2. Functions.-

      1. Legislative.- To dictate bills, legislative decrees, decree laws and regulations.

      2. Endorsement.- Of the acts of the King.

      3. Policies.- Advises the President of the Government.

      4. Economic.- Prepare the budget

      5. International.- Direct foreign policy related to defense and international relations.

      6. Justice.- Propose the appointment of the State Attorney General, of two members of the Constitutional Court and file the unconstitutionality appeal.


    1. Functions.- The autonomous communities have legislative power, which resides in their assembly. In addition to other functions: budgetary, control of the regional executive, election of the government, of the President of the executive, participation in the reforms of the Constitution, control of the constitutionality of Laws and provisions with force of law, participation in the composition of the Senate.

    2. Advantages of autonomy.- They are closer to their citizens so they better understand their problems, they allow the citizens of that autonomy to manage their problems (within a limit).

    3. Disadvantages of the autonomies.- They compete with each other to try to attract investment, they are not coordinated under conditions, there is inequality in the provision of services depending on whether we are in one autonomy or another, problems with languages, more officials.

  8. CITY COUNCIL FUNCTIONS.- Manage the city's own services such as lighting, cleaning, sewerage, etc., the regulation of urban traffic and the city's sanitary control.


    1. Reasons for doubting the sustainability of pensions.-

      1. The crisis has greatly increased unemployment so that there are now far fewer people working to pay pensions than those who are retired.

      2. The jobs that can be found now are precarious, with very low salaries that hardly contribute to Social Security.

      3. Life expectancy doesn’t stop growing.

    2. Possible solutions.-

      1. Complementing Social Security pensions with private pension plans.

      2. Reduce pensions

      3. Raise the retirement age

      4. End precariousness at work

      5. Take steps to get out of this economic crisis and create jobs


    1. Definition.- The term business cycle refers to fluctuations in the economy, in a broad sense, in production or economic activity over several months or years. These fluctuations occur around a long-term increasing trend, and typically involve shifts over time between periods of relatively rapid economic growth (boom or bust), and periods of relative stagnation or decline (contraction or recession).

    2. Phases.-

      1. Top.- All economic activity is in a period of prosperity, the economy is in full employment or is close to it so that all productive resources are employed. There is a surplus.

      2. Recession.- A recession is a general slowdown in economic activity over a sustained period of time, or a contraction of the business cycle. During recessions, many macroeconomic indicators vary in a similar way. Output, measured by Gross Domestic Product (GDP), employment, investment spending, utilization capacity, household income, and business profits, all fall during recessions. An economic crisis is a sudden transition to a recession. There is a deficit

      3. Depression.- A depression is a sustained and long decline in economic activity. It’s more severe than a recession, which is seen as a normal downturn in the business cycle. Considered a rare and extreme form of recession, a depression is characterized by abnormal growth in unemployment, restricted credit, decreased production and investment, numerous bankruptcies, reduced trade, and highly volatile fluctuations in relative value of the currency, mainly devaluations, and the value of the Public Debt. Deflation or hyperinflation are also elements that can occur in a depression. There is a deficit.

      4. Expansion.- Expansion is a growth in the level of economic activity, and of the goods and services available in the market. It’s a period of economic growth measured by an increase in real GDP. Typically it refers to a rebound in production and use of resources. There is a surplus.

    1. Public Spending and Cycles.- Keynesian economics suggests that adjusting government spending and tax rates are the best ways to stimulate aggregate demand. This can be used in times of recession or low economic activity as an essential tool to promote the framework for strong economic growth and, consequently, full employment. In theory, if this policy generated a deficit, it would be paid for by the income generated by economic growth.

    2. Public debt.- It’s the set of debts that the Spanish State maintains against individuals who may be Spanish or from another country. In Spain, the currently existing public debt securities are Treasury Bills, State Bonds and State Obligations, mainly taking into account their repayment term. The public debt amounted to 93.4% of the Gross Domestic Product in 2013. The EU's target is for a public debt of 60%.

    3. Risk premium.- It is the difference between the profitability of the risky investment and the risk-free profitability. In Spain, the risk premium is calculated by comparing the interests that the German State pays to those who buy its debt and those that the Spanish State pays for its debt. If the interests of the German are at 1.5% and those of the Spanish are at 2.3 percent, it is said that the risk premium is 80 points (2.3 - 1.5) x 100. While the higher this premium, the more expensive it will be for Spain to borrow money.


    1. Lorenz curve.- The Lorenz curve is often used to represent the distribution of income where it shows at the bottom the percentage of families and the percentage of total income they have. The percentage of families is plotted on the X axis, the percentage of income on the Y axis.

      1. Perfect equality.- Each point of the Lorenz curve represents a state such as “20% of all families have 10% of total income”. A perfectly equal income distribution would be one in which each person has the same income. In this case, "N% of the company would have N% of the income". This can be represented by a straight line y = x, called the line of perfect equality or equidistribution.

      2. Perfect inequality.- On the contrary, a perfectly unequal distribution would be one in which one person has all the income and the others nothing. In that case, the curve would be y = 0 for x <100% and y = 100% when x = 100%. This curve is called the line of perfect inequality

    1. Gini coefficient.- The Gini coefficient is the area between the line of perfect equality and the observed Lorenz curve. The larger this area, the greater the inequality. It is defined as a proportion and can vary from 0 to 1 (0% to 100%): A low Gini coefficient indicates more distribution of income or wealth, with 0 corresponding to perfect equality (all having exactly the same income) , while higher Gini coefficients indicate a more unequal distribution, with 1 corresponding to perfect inequality (eg a situation with more than one individual, where one person has all the income)

    1. Inequality.- It is harmful to a country. If we compare two countries with the same GDP but that in one the income is well distributed and in the second there is a small group of very rich people and the rest are very poor, the first is going to work much better than the second. On the other hand, if all citizens of a country have equal access to education, no genius will be lost, but if only the rich can study in a country, a lot of grey matter will be lost.

    2. Mobility.-

      1. Social.- The states must promote that individuals can move from one social class to another based on their merits without any limitation. For example, in India, some very poor social classes find it very difficult, if not impossible, to move up.

      2. Geographical.- Countries in which, like the United States, individuals tend to change cities and even states to find work, tend to have more economic growth than those in which individuals only look for work in their place of residence since they are missing out on opportunities for career advancement.



    1. Relationship between interest rates and economic growth.- The contraction of the money supply can be achieved indirectly by increasing nominal interest rates. Monetary authorities in different nations have different levels of control over interest rates. By increasing interest rates under its control, a monetary authority can contract the money supply, because high interest rates encourage savings and discourage borrowing. Lowering interest rates would increase the money supply.

    2. Relationship between the interest rate and inflation.- If financial entities lend at low interest rates, families will ask for money, increasing demand, to buy goods and services, and prices may rise if supply doesn’t increase in the same proportion, generating inflation (if it is a generalized phenomenon).


    1. Types of inflation according to the value of the ratio.-

      1. Hyperinflation.- Economists generally agree that high inflation rates and superinflation are caused by excessive growth in the money supply.

      2. Moderate inflation.- The points of view on which factors determine low to moderate inflation are more varied. Low or moderate inflation can be attributed to fluctuations in real demand for goods and services, or changes in available supplies, such as during times of scarcity (in periods of hardship or crisis), in addition to the growth of the money supply. However, the consensus view is that a long sustained period of inflation is caused by a money supply growing (at a rate) faster than the rate of economic growth.

    2. Causes of moderate inflation.-

      1. Monetarists point of view.-

        1. Money supply.- Monetarists believe that the most important factor influencing inflation or deflation is the management of the money supply, facilitating or hindering credit. They consider that fiscal policy, or public spending and taxation, are ineffective in controlling inflation.

        2. Monetary phenomenon.- Monetarists claim that the empirical study of monetary history shows that inflation has always been a monetary phenomenon. The theory of the quantity of money simply indicates that the total amount of spending in an economy is fundamentally determined by the total quantity of money in existence (circulation).

      2. Point of view of the Keynesians.-

        1. Main cause.- Keynesian economic theory proposes that changes in the money supply don’t directly affect prices, and that visible or measurable inflation is the result of pressures in the economy expressing themselves in prices. Supply is a major (but not the only) cause of inflation

        2. Three types. - There are three main types of inflation, as part of what Robert J. Gordon calls the “model triangle”.

          1. Demand inflation.- It’s caused by increases in aggregate demand due to the increase in private and public spending. Demand inflation is generated for a faster rate of economic growth as a result of excess demand due to favorable market conditions that stimulate investment and expansion.

          2. Cost inflation.- It’s caused by a drop in the aggregate supply of certain goods and services. This may be due to natural disasters, a drop in potential production or increased prices of inputs for other reasons (in the production system). For example, a sudden decrease in the supply of oil, leading to increased oil prices, can cause cost inflation. Producers to whom oil is a part of their costs will pass it on to consumers in the form of increased prices.

          3. Self-built inflation.- It’is induced by adaptive expectations, and is often connected to the “price/wage spiral”. This type of inflation is based on the assumption that workers try to keep their wages above prices (above inflation), and that companies pass on these higher labor costs to their customers as higher prices, leading to a “ vicious circle".

    3. Consumer price index.- Inflation is usually measured by calculating the variation ratio of a price index, usually the Consumer Price Index. The Consumer Price Index measures the prices of a selection of goods and services purchased by a “typical consumer”. Therefore, inflation is the percentage change in a price index over time (if the index goes from 100 to 102, inflation would be 2%).


    1. Types.-

      1. Frictional.- Frictional unemployment occurs when a worker changes from one job to another. While he’s looking for a job, he’s experiencing frictional unemployment. This applies to new graduates looking for a job as well. This is a productive part of the economy, increasing the long-term welfare of workers and economic efficiency, and it’s also a type of voluntary unemployment. It’s the result of imperfect information in the job market, because if job seekers knew that they would be employed for a particular vacancy, almost no time would be wasted in getting a new job by eliminating this form of unemployment. Frictional unemployment is always present in an economy, therefore,

      2. Classic.- Classic unemployment or real wage unemployment can occur when real wages for a job are set above the agreed minimum level (in Spain the Minimum Wage). Liberal economists like FA Hayek argue that unemployment increases further if the government intervenes in the economy to try to improve the conditions of those with jobs. For example, the minimum wage increases the cost of low-skilled laborers above market equilibrium, resulting in people who want to work at the starting line but can’t as the imposed wage is greater than their value as workers, becoming unemployed. They believed that laws restricting layoffs made it less likely for businesses to hire up front, as hiring becomes riskier, leaving many young people unemployed and unable to find work. Some, such as Murray Rothbard, suggest that even social taboos (non-market, supply and demand criteria) can prevent wages from falling to the agreed level (MW).

      3. Cyclical or Keynesian.- Cyclical or Keynesian unemployment, also known as demand-poor unemployment, occurs when there is not enough aggregate demand in the economy. This is caused by a recession in the business cycle, and wages don’t fall to find the equilibrium level.

      4. Structural.-

        1. Definition.- Structural unemployment is caused by a mismatch between jobs offered by employers and potential workers. This can refer to geographic locations, skills, and many other factors. If such a mismatch exists, frictional employment is likely to be more significant as well. For example, in the late 1990s there was a technology bubble, creating demand for IT specialists. In 2000-2001 this bubble burst. A real estate bubble soon formed, creating demand for real estate agency workers, and many computer scientists had to retrain to find employment.

        2. Permanent.- André Gorz believes that structural unemployment could be permanent in modern society, as the microchip revolution and the explosion in computer science and the robotization of work, even in the least developed countries in the industry increases productivity.

      5. Seasonal.- Seasonal unemployment results from fluctuations in labor demands in certain industries due to the seasonal nature of production. In such industries there is a seasonal pattern in the demand for labor. During the period when the industry is at its peak there is a high degree of seasonal employment, but during the off-peak period, there is seasonal unemployment. Seasonal unemployment occurs when an occupation isn’t in demand in certain seasons.

      6. Voluntary and involuntary.- Although there have been various definitions of voluntary and involuntary unemployment in the economic literature, a simple distinction is often applied. Voluntary unemployment is attributed to the decisions of individuals, while involuntary unemployment exists because of the socioeconomic environment (including market structure, government intervention, and the level of aggregate demand) in which individuals operate. In these terms, much or most of frictional unemployment is voluntary, as it reflects individual search behavior. On the other hand, cyclical unemployment, structural unemployment, and classical unemployment, are largely involuntary in nature. But nevertheless, the existence of structural unemployment may reflect choices made by unemployment in the past, while classical unemployment may result from legislative and economic choices made by unions and political parties. Thus, in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers, even when wages can be adjusted so that if all vacancies were filled, there would be unemployed workers. This is the case with cyclical unemployment, whereby macroeconomic forces lead to microeconomic unemployment.

    2. Unemployment rate.- The active population are job providers; it’s all people, not military, who are employed or unemployed. The fraction of the workforce that is looking for a job but can’t find it determines the unemployment rate.


    1. Definition.- International trade is the exchange of capital, goods and services across international borders or territories. In most countries it represents a significant part of the Gross Domestic Product (GDP). While international trade has been around through much of history, its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinationals and the purchase of manufactured products in a foreign company to save costs are all having a very important impact on the international trading system. The growth of international trade is crucial for the permanence of globalization. International trade is a very important source of economic income for each nation that is considered a world power. Without international trade, nations would be limited to goods and services produced within their own borders.

    2. Theories of international trade.-

      1. Absolute advantage.- It refers to the ability of a person or a country to produce a particular good at a lower absolute cost than another. For example, if China produces a toy with costs of 2 euros and a Spanish company needs to incur costs of 5 euros for the same toy. The Chinese company has an absolute advantage over the Spanish company. According to this theory, the toys that are sold in Spain will be Chinese. This theory explains part of international trade, see the growth of businesses that sell Asian products. However, it doesn’t fully explain international trade, since countries with higher costs than China are able to export their products to Asian countries.

      2. Comparative advantage.-

        1. Definition.- Comparative advantage refers to the ability of a person or a country to produce a particular good at a lower relative cost than another person or country. It’s the ability to produce a product more efficiently given the other products that could be produced. It can be contrasted with the absolute advantage that refers to the ability of a person or a country to produce a particular good at a lower absolute cost than another. Comparative advantage explains how trade can create value for both parties even when one produces all goods with fewer resources than the other. The net benefits of such an outcome are called gains from trade.

        2. Example.- We are going to suppose two countries (Spain and Morocco) and two products (bicycle and computer). Morocco produces both products with less costs, but the difference (relative cost) won’t be the same, that is, Morocco has an advantage in both but it is likely that the cost difference in the bicycle is greater since it is less mechanized. So Spanish companies should stop producing bikes and focus on the production of computers and, on the contrary, Morocco companies should direct their resources to the production of bikes. In this way, the returns to productive resources are maximized.


    1. Preferential trade area.-

      1. Definition.- A preferential trade area (also a preferential trade agreement) is a trade bloc that gives preferential access to certain products from participating countries. This is done to reduce tariffs, but not to abolish or eliminate them completely. A preferential trade area can be established through a trade pact. It’s the first phase of economic integration. The line between a preferential trade area and a free trade area, which we will see next, can be blurred, since almost any preferential trade area has as its main goal to become a free trade area, in accordance with the General Agreement on Rates and Trade.

      2. Examples.- The European Union and the group of African, Caribbean and Pacific states (ACP countries) until 2007

    2. Free trade area.-

      1. Definition.- The free trade area is a designated group of countries that have agreed to eliminate tariffs, quotas, and preferences on most (if not all) of the goods and services traded between them. It can be considered the second phase of economic integration. Countries choose this type of form of economic integration if their economic structures are complementary. If they are competitive, they will choose a customs union, which is discussed later.

      2. Rules of origin.- Unlike a customs union, members of the free trade area don’t have the same policies with respect to non-members, meaning different quotas and customs. To avoid evasion (through re-export), countries use the certification system at origin more commonly called rules of origin, where there is a requirement for a minimum degree of contributions of local material and local value-added transformations. for imported goods. Goods that don’t meet these minimum requirements aren’t authorized by the special treaty provided for in the free trade area clauses.

      3. Example.- The European Free Trade Association (EFTA), which was established in 1961 as an alternative to the European Economic Community (EEC). Today only Iceland, Norway, Switzerland and Liechtenstein are members of EFTA.

    3. Customs union.-

      1. Definition.- A customs union is a free trade area with a common external tariff. Participating countries establish a common foreign trade policy, but in some cases use different import quotas. The common competition policy is also useful in promoting competition in the internal market. The purposes of establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between member countries. It is the third phase of economic integration. The customs union is established through a commercial pact.

      2. Example.- The Southern African Customs Union or SACU (Southern African Customs Union) is a customs union that brings together 5 Southern African countries, which are Botswana, Lesotho, Namibia, South Africa and Swaziland.

    4. Common Market.-

      1. Definition.- A common market is a customs union with common policies on product regulation, and freedom of movement of production factors (capital and labor) and business. The goal is that the movement of capital, labor, goods and services between members is as easy as within them. It’s the fourth phase of economic integration.

      2. Example.- The Southern Common Market - MERCOSUR - is made up of the Argentine Republic, the Federative Republic of Brazil, the Republic of Paraguay, the Eastern Republic of Uruguay, the Bolivarian Republic of Venezuela and the Plurinational State of Bolivia.

    5. Economic and monetary union.-

      1. Definition.- An economic and monetary union is a common market with a common currency. It’s the fifth phase of economic integration. The economic and monetary union is established through a trade pact related to the currency.

      2. Example.- The euro is used by nineteen member states of the European Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Holland, Portugal, Slovakia, Slovenia and Spain.



    1. Definition.- Free trade is a type of commercial policy that allows merchants to act and trade without government interference. Therefore, the policy allows mutual trading partners to gain from trade, with goods and services produced according to the theory of comparative advantage.

    2. Adam Smith and David Ricardo.- The value of free trade was first observed and documented by Adam Smith in his great work, The Wealth of Nations in 1776. Later, David Ricardo demonstrated the benefits of trade via specialization.

    3. Protectionism - Free trade.- The countries protect, mainly, their agriculture and their basic or strategic industries. Free trade is, above all, for non-essential goods while protectionism has been the most common approach in the trade of raw materials and agricultural products.

    4. Support for free trade.- Free trade is usually most strongly supported by the most economically powerful nations, although they often engage in selective protectionism for those industries that are strategically important, such as the protective tariffs (tariffs) applied to agriculture by the United States and Europe. The Netherlands and the United Kingdom were both defenders of free trade when they were economically dominant, today the United States, the United Kingdom, Australia and Japan are their biggest supporters. However, many other countries (such as India, China and Russia) are increasingly becoming advocates of free trade as they are becoming more economically powerful themselves. As customs levels drop there are, too, greater facilities for trade.

    5. Agricultural interests.- Traditionally, the agricultural interests of poor or developing countries are usually in favor of free trade, while the manufacturing sectors of these countries often support protectionism as a means of promoting still incipient or immature businesses. However, agricultural lobbies, particularly in the United States, Europe, and Japan, are primarily responsible for particular rules in major international trade treaties that allow more protectionist measures in agriculture than for other goods and services that don’t exist.

    6. Recessions.- During recessions there is often strong internal pressure to increase tariffs to protect domestic industries. This happened around the world during the Great Depression (and now too). Many economists have tried to blame tariffs as the underlined reason behind the collapse in world trade that many seriously believe deepened the depression in the 1930s. In the 2008 crisis there is also discussion about the advantages and disadvantages that membership of the EU has brought us, where trade has no barriers.


    1. Definition.- Protectionism is the economic policy of restricting trade between states, through methods such as tariffs on imported goods, restrictive quotas (or quotas), and a variety of other restrictive government regulations designed to discourage imports, and prevent the foreign control of local markets and companies. This policy is closely aligned with anti-globalization, and in contrast to free trade, where government barriers to trade are kept to a minimum. The term is, for the most part, used in the context of economics, where protectionism refers to policies or doctrines that protect businesses and workers within a country by restricting or regulating trade with other foreign nations.

    2. Mercantilism.- Historically, protectionism was associated with economic theories such as mercantilism (which believed that it’s beneficial to maintain a positive trade balance), and substitute imports for products manufactured in the interior of the country. During that time, Adam Smith famously warned against the "self-serving sophistry" of the industry, seeking to gain an advantage at the expense of consumers (in this situation consumers would pay higher prices for products that can be purchased in other countries at a lower price ). All economists today agree that protectionism is harmful only because its costs outweigh its benefits, and that hinders economic growth. Nobel Prize winner in economics and trade theorist Paul Krugman once famously stated, that "If there were an Economic Creed, it would surely contain the statements:" I understand the Principle of Comparative Advantage "and" I believe in Free Trade. "

    3. Recent examples.- Recent examples of protectionism in first world countries are, as a rule, motivated by the desire to protect the livelihoods of individuals in politically important national industries. Whereas before, manual jobs were being lost to foreign competition, in recent years there has been a renewed debate on protectionism due to outsourcing in tax havens and the loss of office jobs (technicians and specialists). However, most economists agree that the benefits of free trade, in the form of consumer surplus (higher sales) and increased efficiency mainly due to external competition, are greater than the losses of jobs in the economy work in at least a 2 to 1 margin, with some people arguing that the margin is as high as 100 to 1 in favor of free trade.

    4. Protectionist policies.-

      1. Tariffs.- As a general rule, tariffs are taxes on imported goods. Tariff rates usually vary according to the type of imported goods. The amount of tariffs will increase the cost to importers, and will increase the price of imported goods in local markets, thereby reducing the quantity of imported goods. Tariffs can also be imposed on exports (for example, China has imposed tariffs on Chinese rice exporters to prevent it from being sold in more attractive or profitable markets). However, as export tariffs are often perceived as harmful to local industries, while import tariffs are perceived as helping local industries, export tariffs are,

      2. Import quotas.- These are limitations in quantity or units of products that can be imported in a given period (generally one year). To reduce the quantity and therefore increase the market price of imported goods. The economic effect of an import quota is similar to that of a tariff, except that the tax revenue earned by a tariff will, on the contrary, in this case be distributed to those who receive the import licenses. Economists often suggest that import quotas be auctioned to the highest bidder, or that import quotas be replaced by an equivalent tariff.

      3. Administrative barriers.- Countries are sometimes accused of using various administrative rules (regarding food safety, environmental standards, electrical safety, etc.) as a way to introduce barriers to imports (for example, in Spain it is common to sale of oranges in mesh that is not allowed in other countries).

      4. Legislation against the sale of imported merchandise at prices below its market value.- Supporters of this type of laws argue that they prevent the “dumping” of cheaper foreign goods that would cause local companies to close forever or they are acquired by foreign competition and subsequently prices are raised until costs are covered again. However, in practice, anti-dumping laws are usually used to impose trade tariffs on foreign exporters.

      5. Direct subsidies.- Government subsidies (in the form of flat-rate payments or cheap loans) are sometimes given to local companies that can’t compete well against foreign imports. These subsidies are intended to protect local jobs, and to help local businesses adjust to world markets (for example, in Andalusia, subsidies have been given to Santana Motor in Linares for many years to maintain production of Suzuki vehicles with the excuse of maintaining employment).

      6. Export subsidies.- Export subsidies are often used by governments to increase exports. Export subsidies are the opposite of export tariffs, exporters are paid a percentage of the value of their exports. Export subsidies increase the amount of trade.

      7. Exchange rate manipulation.- A government can intervene in the exchange market to lower the value of its currency by selling its currency on the exchange market. Doing this will increase the cost of imports and lower the cost of exports, leading to an improvement in your trade balance. For example, China artificially devalues its currency (the yuan) to favor its exports and limit its imports. However, such a policy is only effective in the short term, since it will most likely lead to inflation in the country in the long term, which will increase the cost of exports, and reduce the relative price of imports.

      8. Common Agricultural Policy (CAP) in the EU.- Some of the main critics of the Common Agricultural Policy reject the idea of protectionism, in theory, in practice or both. Free market advocates are among those who disagree with any kind of government intervention because, they say, a free market without interference will allocate resources more efficiently. The setting of artificial prices inevitably leads to distortions in production, with excess production being the usual result. The creation of "grain mountains" or fully filled silos, where huge reserves of unwanted grain are purchased directly from farmers at prices set by the CAP well above the market may be one example. Subsidies allow smaller, old-fashioned or inefficient agricultural farms to continue operating that would not otherwise be viable. An honest economic model would suggest that it would be better to allow the market to find its own price levels, and for non-economic agriculture to cease. The resources used in agriculture would then be shifted to a myriad of more productive outputs, such as infrastructure, education or health.


    1. Presentation.- The European Union (EU) is an economic and political union of 27 member states, located mainly in Europe (for example, the Canary Islands or French Guiana). It was established by the Maastricht Treaty on November 1, 1993, on the foundations of the pre-existing European Economic Community. With a population of nearly 500 million, the EU generates an estimated 30% ($ 18.4 trillion in 2008) of nominal gross world product.

    2. Freedom of movement.- The EU has developed a common market through a standardized system of laws that are applied in all member states, ensuring the freedom of movement of people, goods, services and capital. It maintains common policies in trade, agriculture, fishing and regional development. A common currency, the euro, has been adopted by nineteen member states constituting the eurozone. The EU has played a limited role in foreign policy, having representation at the World Trade Organization, G8 summits and the United Nations. It enacts legislation in justice and local affairs, including the abolition of passport controls among many member states that are part of the Schengen Area. Twenty-one EU countries are members of NATO.


    1. Positive effects of globalization.-

      1. Industrial.- Global production markets have developed and there is greater access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national limits.

      2. Financial.- Emergence of global financial markets and better access to external financing for borrowers. As these global structures grew faster than any regulatory regime, the instability of the global financial infrastructure increased dramatically, as evidenced by the financial crisis of 2008.

      3. Economical.- Realization of a global common market, based on the freedom of exchange of goods and capital. The interconnectivity of these markets, however, meant that an economic collapse in any given country could not be contained.

      4. Politics.- Some use globalization as a means for the creation of a world government that regulates relations between governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers; partly because of its strong and rich economy. Influenced by globalization and with the help of the United States own economy, the People's Republic of China has experienced tremendous growth in the past decade. If China continues to grow at the rate projected by trends, then it is very likely that in the next twenty years, there will be a further redistribution of power among world leaders. China will have a lot of wealth, industry, and technology to rival the United States for the position of leading world power.

      5. Informative.- Increases in information flow between geographically remote locations. It could be said that this is a technological change with the arrival of fiber optic communications, satellites, and the increase in telephone and Internet availability.

      6. Language.- The most popular language is English. About 35% of post, telex and cable are in English. About 40% of world radio programs are in English. About 50% of all Internet traffic uses English.

      7. Competence.- Survivors in the new world business market call for improved productivity and heightened competition. Because the market is going global, companies in various industries have to improve their products and use technology skillfully to face increased competition.

      8. Ecological.- The arrival of global environmental changes that could be solved with international cooperation, such as climate change, waters that cross borders and pollution, ocean overfishing, and the spread of invasive species. Since many factories are built in developing countries with less environmental regulation, globalization and free trade can increase pollution. On the other hand, economic development historically requires a dirty industrial stage, and it is argued that developing countries should not, via regulation, be prohibited from increasing their standard of living.

      9. Cultural.- The growth of intercultural contacts; the arrival of new categories of knowledge and identities that express cultural diffusion, the desire to increase one's standard of living and enjoy foreign products and ideas, adopt new technologies and practice, and participate in a “world culture”. Some lament the resulting consumerism and the loss of languages.

      10. Multiculturalism.- The spread of multiculturalism, and better individual access to cultural diversity (for example, through the export of Hollywood and Bollywood films). Some consider such imported culture a danger, since it can supplant the local culture, causing reduction in diversity or even assimilation. Others consider that multiculturalism promotes peace and understanding between people.

      11. Travels and tourism.- More international travel and tourism. WHO estimates that up to 500,000 people are on airplanes at any one time.

      12. Immigration.- Increased immigration, including illegal immigration

      13. Consumption of local products.- The extension of the consumption of local products (for example food) to other countries (often adapted to their culture).

      14. Social.- The development of the system of non-governmental organizations as the main agents of global public policy, including humanitarian aid and development efforts.

      15. Technique.- The development of a global telecommunications infrastructure and a greater flow of data between borders, using technologies such as the Internet, satellite communications, the submarine fiber optic cable and wireless telephones.

      16. Models applied globally.- An increase in the number of models applied globally; for example, copyright laws, patents, and global trade agreements

      17. Legal/ethical.- The creation of the international criminal court and international justice movements. The importation of crime and the growing awareness of global crime fighting efforts and cooperation. The emergence of global administrative law.

    2. Negative effects of globalization.-

    3. Offshoring.- It is too easy to look at the positive aspects of globalization and the great benefits that are clear anywhere, without acknowledging several negative aspects. They are often the result of globalized businesses and the offshoring of once self-sustaining economies.

    4. Inequality and environmental degradation.- Globalization - the increasing integration of economies and societies around the world - has been one of the most heated topics of debate in the international economy in recent years. Rapid growth and poverty reduction in China, India and other countries that were poor 20 years ago has been a positive aspect of globalization. But globalization has also generated significant international opposition that inequality and environmental degradation have increased. In the Midwest of the United States, globalization has eroded its competitiveness in industry and agriculture, lowering the quality of life in places that haven’t adapted to change.

  5. FAIR TRADE.- Fair Trade is a commercial system based on dialogue, transparency and respect, which seeks greater equity in international trade, paying special attention to social and environmental criteria. It contributes to sustainable development by offering better commercial conditions and ensuring the rights of disadvantaged producers and workers, especially in the South.


    1. Definition and measurement.- Economic growth is the increase in the amount of goods and services produced by an economy over a period of time and is dependent, among other things, on an adequate increase in the creation of money. Growth is conventionally measured as the percentage increase in real Gross Domestic Product, or real GDP. GDP is usually calculated in real terms, that is, in terms of adjusted inflation, to eliminate the effect of inflation on the price of the goods and services produced. Another perspective used in the theories of economic growth ”or“ the theory of economic growth ”typically refers to the growth of potential production, that is, production at“ full employment ”that is derived from the growth in aggregate demand.

    2. Short-term stabilization and long-term growth.-

      1. Distinction.- Economists distinguish between short-term economic stabilization and long-term economic growth. The issue of economic growth is fundamentally concerned with the long term

      2. Short term.- The short-term variation in economic growth is classified as the economic cycle, and almost all economies experience periodic recessions and expansions.

      3. Long term.- The long-term path of economic growth is one of the central questions of economics; despite measurement problems, an increase in a country's GDP is generally taken as an increase in the standard of living of its inhabitants. Over very long periods of time, even small annual growth rates can have big effects. A growth rate of 2.5% per year will lead to a doubling of GDP within 28 years, while a growth rate of 8% per year (experienced by some of the Four Asian Tigers: Taiwan, South Korea, Singapore and Hong Kong ) will lead to a doubling of GDP within 9 years. This exponential characteristic can aggravate the differences between nations. A growth rate of 5% seems similar to another of 3%, but after two decades, the first economy would have grown 165%, the second only 80%.

    3. Growth of the Gross Domestic Product without creating inflation.- In dominant economies, the purpose of government policy is to encourage economic activity without encouraging growth in the general price level. The reasoning is that if more money is changing hands, but the prices of individuals' goods are relatively stable, then it is proven that there is more productive capacity, and therefore more capital, because it is capital that is allowing get more done at a lower cost per unit.

    4. Economic growth strategies.-

      1. Distributive change.- Growth accompanied by a better distribution is better than just growth.

      2. Good government.- Good government means efficient and fair government, a government that is less corrupt and that works for the long-term interests of the nation as a whole. Examples of good governance leading to economic development and poverty reduction can be seen in countries such as Thailand, Taiwan, Malaysia, South Korea, and Vietnam.

      3. Debt relief.- Given that many less developed nations have themselves incurred extensive indebtedness with banks and governments of wealthy nations, and given the interest payments on these debts are often more than a country can generate per year in export earnings, canceling part of all these debts can allow poor nations to “get out of the hole”. However, the effectiveness of debt relief is uncertain and whether or not it has lasting effects is debated. It may not change the underlying conditions that led to less long-term development in the first place.

      4. Import substitution and export industries.- The most widely used policies of East and South-West Asian countries have been successful and to reduce poverty they have substituted imports and developed export industries.

        1. Substitution of imports.- It simply means trying to discourage the importation of goods so that the domestic economy of less developed countries can begin to make the products themselves. Import substitution was carried out successfully in Taiwan. Another example is South Korea's ban on imported Japanese cars that lasted for decades. This led South Korea to strengthen its own auto industry, now selling millions of highly valued cars in the United States and Europe.

        2. Export industries.- There is also a common export industries policy. With this policy, the government helps to stimulate the production of goods to export to rich nations to obtain a favorable trade balance and the entry of capital or funds for more investment. An avalanche of consumer products such as televisions, radios, bicycles, and textiles in the United States, Europe, and Japan has helped fuel the economic expansion of the Asian tiger economies in recent decades.

      5. Land redistribution.-

      6. Microloans.- One of the most popular of the new technical tools for economic development and poverty reduction is the microloans made famous in 1976 by the Grameen Bank in Bangladesh. The idea is to lend small amounts of money to farmers or villages so that these people can get the things they need to increase their financial reward. A small water pump that costs only $50 can make a big difference in a town without irrigation, for example. A couple hundred dollars for a small bridge linking a town to a city where you can market farm produce is another example.

      7. Empower women.

      8. Fair trade.- Another method that has been proposed to alleviate poverty is fair trade, which advocates payment above the market price in addition to social and environmental standards in areas related to the production of goods. The effectiveness of this method for poverty reduction is controversial.

      9. Development aid.- The most developed nations give development aid to developing countries. The United Nations target for development aid is 0.7% of GDP; really only a few nations achieve it.

        1. Criticisms.- Some non-governmental organizations have maintained that Western monetary aid often only serves to increase poverty and social inequality, or because it is conditioned by the implementation of harmful economic policies in recipient countries, or because it is linked to importing products from the donor country over cheaper alternatives, or because foreign aid is seen as serving the interests of the donor rather than the recipient. Critics also maintain that some of the foreign aid is stolen by corrupt governments and officials, and that higher levels of aid erode the quality of government. The policy is much more oriented towards getting more monetary aid than towards the needs of the people.

        2. Audit.- Advocates maintain that these problems can be solved with a better audit of how aid is used. Help from non-governmental organizations can be more effective than government aid; this may be because it is better at locating the poor and is better controlled at the level of the common people.

  7. THE DECREASE THEORY.-The decrease is a stream of favorable political, economic and social thought to controlled steady decline in economic output, with the aim of establishing a new equilibrium relationship between human beings and nature, but also between human beings themselves.


    1. Oceans- The circulation patterns of the oceans have a strong influence on climate and weather and, in turn, on the food supply of humans and other organisms. Scientists have warned of the possibility, under the influence of climate change, of a sudden alteration in the circulation patterns of ocean currents that could drastically alter the climate in some regions of the globe. The main environmental impacts occur in the most inhabited regions of the ocean's limits - estuaries, the coastline and bays. Ten percent of the world's population - some 600 million people - live in low-lying areas vulnerable to rising sea levels. Worrisome trends that require management include: overfishing (beyond sustainable levels), coral bleaching due to ocean warming and ocean acidification due to increasing levels of dissolved carbon dioxide; and the sea level rises due to climate change. Because its vast oceans also act as a convenient dump for human waste. Strategies to remedy this include: more care in waste management, legal control of fishing overexploitation by adopting sustainable fishing practices and the use of sensitive and sustainable aquaculture and fish farms, reduction of fossil fuel emissions and the restoration of coastal habitats and other habitats.

    2. Toxic substances.- Chemical synthetic production has increased following the stimulus received during World War II. Chemical production includes everything from herbicides, pesticides, and fertilizers to household chemicals and hazardous substances. Aside from increasing greenhouse gas emissions into the atmosphere, chemicals of particular concern include: heavy metals, nuclear waste, chlorofluorocarbons, persistent organic pollutants, and all harmful chemicals capable of bioaccumulation. Although most synthetic chemicals are harmful, rigorous testing of new chemicals is required in all countries for adverse health and environmental effects.

    3. Mining industry.-

      1. Erosion, etc.- Environmental issues can include erosion, sink formation, loss of biodiversity, and contamination of soil, groundwater, and surface water from chemical mining processes. In some cases, additional logging of forests is done in the vicinity of mines to increase the space available for the storage of created waste and dirt. In addition, creating environmental damage, the pollution resulting from the escape of chemical products also affects the health of the local population. Mining companies, in some countries, are required to follow environmental rehabilitation codes, ensuring that the area in which mining has been applied is returned to its original state.

      2. Arsenic, etc.- Mining can have adverse effects on the surrounding surface and groundwater if protective measures are not taken. The result can be unnatural high concentrations of some chemicals, such as arsenic, sulfuric acid, and mercury over a significant surface or underground area. Liquid residues of mere dirt or rock debris - even if they are non-toxic - also devastate the surrounding vegetation. Dumping liquid waste into surface waters or forests is the worst option here. Disposing of the waste at the bottom of the sea is seen as the best option (if the dirt is pumped to great depth. Merely storing it on land and refilling the mine after it has been depleted is, of course, even betterif forests do not need to be cleared for waste storage. There is potential for massive contamination of the area around the mines from various chemicals used in the mining process, as well as potentially harmful components and metals pulled out of the ground with the ore. Large amounts of water produced from mine drainage, mine cooling, aqueous extraction, and other mining processes increase the potential for these chemicals to contaminate soil and surface water. In well-regulated mines, hydrologists and geologists take careful soil and water measurements to exclude any type of water contamination that could be caused by mining operations. The reduction or elimination of environmental degradation is imposed on modern American mining by federal and state laws, restricting operators from finding standards to protect surface and groundwater from contamination. This is best done through the use of non-toxic extraction processes such as Bioleaching. If the project site does, however, become contaminated, mitigation techniques such as acid mine drainage (AMD) need to be carried out

    4. Erosion.- Intensive agriculture often leads to a vicious cycle of depletion of soil fertility and decreases agricultural production and, consequently, increases poverty.

    5. Desertification and overgrazing.-

    6. Deforestation.- As exemplified by the widespread rural poor in China that began in the early twentieth century and is attributed to the unsustainable felling of trees.

    7. Natural factors.- Such as climate or environmental change. Lower-income families suffer most of climate change; however, on a per capita basis, they contribute as little as possible to climate change.

    8. Geographic factors.- For example, access to fertile land, fresh water, minerals, energy, and other natural resources. On the other hand, research on the resource curse has found that countries with an abundance of natural resources creating rapid export growth tend to have less long-term prosperity than countries with less of these natural resources.

  9. SUSTAINABLE DEVELOPMENT.- The sustainable development is a concept developed towards the end of the twentieth century a salternative to the concept of common development, emphasizing reconciliation between economic growth, natural resources and society, avoiding compromising the ability of life the planet, nor the quality of life of the human species.

  10. EUROPEAN ENVIRONMENTAL POLICY.- European environmental policy is based on the principles of caution, prevention, correction of pollution at its source and "whoever pollutes pays". The multiannual environmental action programs set the framework for future actions in all areas of environmental policy. They are integrated into horizontal strategies and are taken into account in international negotiations on the environment. Also, its application is essential.