## Four Determinants of Productivity in Economics

Economic productivity is a crucial determinant of living standards. That’s why some countries have a much higher standard of living than others. Thus, to understand why certain economies are more productive than others, we have to understand how productivity is determined. More specifically, there are four determinants of productivity: physical […]

## Average Tax Rate vs. Marginal Tax Rate

The income tax rate defines what share of a person’s income has to be paid in taxes. However, depending on the tax system, the tax rate may change as the level of income increases or decreases. That means people may have to pay a larger or smaller part of their […]

## How to Calculate the Unemployment Rate

The unemployment rate describes the proportion of a country’s labor force that is without a job even though it’s willing and able to work. It is one of the broadest and most commonly used indicators of the strength and health of an economy (see also most relevant economic indicators). In […]

## Three Monetary Policy Tools

One of the main tasks of central banks is controlling the money supply in the economy. However, because of fractional reserve banking, most of the currency in circulation is actually created by commercial banks. Therefore, central banks can only control the amount of money in the economy indirectly through what […]

## The Malthusian Theory of Population

The Malthusian theory of population examines the relationship between population growth and food supply. It states that the population grows exponentially, while its food supply only grows at a linear rate. That eventually causes the population to outgrow its food supply, which leads to a Malthusian crisis. The theory is […]

## How to Calculate Real GDP Growth Rates

The real GDP growth rate shows the percentage change in a country’s real GDP over time, typically from one year to the next. That means it measures by how much the economic output, adjusted for inflation, increases or decreases over a year. It can be calculated using the following formula: […]

## How to Calculate Marginal Propensity to Save

Marginal propensity to save (MPS) describes the share of additional income that a consumer saves. That means it describes the percentage of additional income they spend on saving instead of buying goods or services. Thus, marginal propensity to save can be calculated as the change in saving (ΔS) divided by […]

## How to Calculate Marginal Propensity to Consume

Marginal propensity to consume (MPC) is defined as the share of additional income that a consumer spends on consumption. That means it describes the percentage of additional income they spend on buying goods and services, instead of saving. Hence, marginal propensity to consume can be calculated as the change in […]