Gross Domestic Product (GDP) is a measure of the value of all goods and services produced within a country’s borders in a given period of time, typically a year. It is used to measure the size and health of a country’s economy. GDP can be calculated in three ways: by adding up the value of all goods and services produced in a given period (the “output” approach); by adding up the income generated by those goods and services (the “income” approach); or by adding up the spending on those goods and services (the “expenditure” approach). Measuring U.S. GDP is done by the Bureau of Economic Analysis (BEA) which releases quarterly and annual estimates. The BEA calculates GDP using the expenditure approach, which looks at the total spending on goods and services by consumers, businesses, government, and foreign buyers. The BEA also calculates GDP using the income approach, which adds up all the income earned by U.S. residents, including wages, salaries, and profits. Real GDP is a measure of GDP that is adjusted for inflation, which means that it shows the value of goods and services produced in a given year in constant prices. Real GDP is useful for comparing economic growth over time and across countries, because it gives a more accurate picture of changes in the economy when inflation is taken into account. However, GDP has some limitations as a measure of economic well-being. For example, GDP does not take into account the distribution of income, so a country with a high GDP per capita may still have a large number of people living in poverty. Additionally, GDP does not account for the value of non-market activities, such as unpaid work in the home, volunteer work, and the value of a clean environment. Finally, GDP per capita is not a perfect measure of the standard of living, as it does not take into account differences in cost of living across countries, or how much of the GDP is spent on necessities versus luxuries.

Unemployment is a measure of the number of people who are willing and able to work but are unable to find employment. There are several different types of unemployment, each of which is caused by different factors. 1. Frictional unemployment: Frictional unemployment refers to the natural turnover in the labor market as workers leave one job to look for another. This type of unemployment is usually short-term and is a natural part of the economy. It represents the time it takes for workers to find new jobs that match their skills and preferences. 2. Structural unemployment: Structural unemployment is caused by changes in the economy that make it difficult for certain groups of workers to find employment. This can be due to changes in technology or the economy, or a mismatch between the skills of available workers and the skills required for available jobs. This type of unemployment is usually long-term and can be more difficult to address. 3. Cyclical unemployment: Cyclical unemployment is caused by the fluctuations in the business cycle. When the economy is in a recession and there is a decrease in demand for goods and services, businesses may lay off workers, resulting in increased unemployment. Conversely, when the economy is growing, businesses may hire more workers, and unemployment decreases. This type of unemployment tends to move in the same direction as the business cycle. It is important to note that there is often overlap between these types of unemployment, as a single individual may experience frictional and structural unemployment at the same time for instance. It’s also important to know that the sum of all types of unemployment gives the total unemployment rate, and the sum of employed people plus unemployed people gives the labor force of a country.

The functions of money include serving as a medium of exchange, a unit of account, store of value, and standard of deferred payment. As a medium of exchange, money is a widely accepted means of payment for goods and services. This eliminates the need for barter and makes transactions more efficient. As a unit of account, money is used to measure the value of goods and services, and to express prices. This allows for easy comparison of the relative value of different goods and services. As a store of value, money is used to save for future purchases. This allows individuals and businesses to accumulate wealth over time. As a standard of deferred payment, money is used to make payments at a later date. This allows for the smooth functioning of credit markets and the ability to borrow and lend money. Banks create money by issuing loans. When a bank makes a loan, it creates a deposit in the borrower’s account. This deposit is money, and it is created out of thin air. Banks can create money in this way because only a fraction of the money deposited with them is held in reserve to meet withdrawal requests, the rest can be loaned out. This process is known as fractional reserve banking. The money market refers to the market for short-term borrowing and lending of funds. It is used by individuals, companies, and governments to borrow and lend money for periods of up to one year. The money market is characterized by low-risk and low-return investments, and is used to manage short-term cash flow needs. The quantity theory of money is an economic theory that states that the overall level of prices in an economy is directly determined by the amount of money in circulation. According to this theory, if the money supply increases without a corresponding increase in the output of goods and services, the result will be inflation. 

Conversely, if the money supply decreases without a corresponding decrease in output, the result will be deflation. The Bretton Woods system was an international monetary system established in 1944, in which the value of the US dollar was fixed to gold and other currencies were pegged to the dollar. The system operated for nearly three decades, but it ultimately collapsed in the 1970s. There are several reasons why the Bretton Woods system came to an end: 1. The US balance of payments deficit: The United States was running a balance of payments deficit as a result of the Vietnam War and the Great Society programs, which led to an outflow of dollars from the country. This put pressure on the US to devalue the dollar, which would have made its exports cheaper and more competitive. 2. The gold outflow: As the US printed more dollars to finance the deficit, other countries began to exchange their dollars for gold. This led to a depletion of the US gold reserves and put further pressure on the dollar. 3. Inflation: The 1970s saw a period of high inflation worldwide, which was partly caused by the oil price shocks of 1973 and 1979. High inflation made it difficult for countries to maintain their exchange rate peg to the dollar, as they had to print more of their own currency to keep up with rising prices. 4. Floating exchange rate system: Many economists and policy makers believed that a floating exchange rate system would be more flexible and better able to adapt to changing economic conditions. This led to a shift away from the fixed exchange rate system of the Bretton Woods. As a result, in 1971, the US suspended the convertibility of the dollar into gold, effectively ending the Bretton Woods system. This led to the adoption of floating exchange rate system, in which the value of currencies fluctuates based on supply and demand in the foreign exchange market.

Inflation cycles refer to the repetitive and predictable pattern of inflation and deflation that occurs over time. Inflation is the sustained increase in the overall price level of goods and services in an economy. Deflation is the sustained decrease in the overall price level of goods and services in an economy. These cycles can be caused by a variety of factors, including changes in the money supply, changes in government spending and taxation, and changes in global commodity prices. The length and amplitude of inflation cycles can vary, but they tend to last for several years. The Phillips curve is a graphical representation of the relationship between inflation and unemployment. The curve shows that there is a trade-off between these two economic variables: when unemployment is low, inflation tends to be high, and when unemployment is high, inflation tends to be low. This relationship is not a long-term or stable one, as in the long run, the Phillips curve tends to shift, meaning that the relationship between inflation and unemployment is not constant. The Business cycle is the fluctuation of economic activity around its long-term growth path. It is characterized by periods of expansion, where the economy is growing and unemployment is low, and periods of contraction, where the economy is shrinking and unemployment is high. These cycles are caused by a combination of factors, including changes in consumer spending, changes in business investment, changes in government spending and taxation, and changes in global economic conditions. The length and amplitude of business cycles can vary, but they tend to last for several years.

The Business cycle is also known as the economic cycle or trade cycle, it is composed of four main phases: expansion, peak, contraction, and trough. The expansion phase is characterized by a growing economy, increasing employment, and rising prices. In the peak phase, the economy reaches its highest point of growth before starting to decline. The contraction phase is characterized by a shrinking economy, decreasing employment, and falling prices. Finally, the trough phase marks the end of the contraction and the beginning of a new expansion. Fiat money is a form of currency that is designated as legal tender by a government, but is not backed by a physical commodity such as gold or silver. The value of fiat money is derived from the faith and credit of the issuer, typically a central government or central bank. Advantages of fiat money include: • It can be easily distributed and exchanged, since it does not have to be physically mined or minted like commodity-backed money • It can be used to stabilize a country’s economy by controlling the supply of money through monetary policy • It can be more durable than commodity-backed money, which can be subject to wear and tear Disadvantages of fiat money include: • Because it is not backed by a physical commodity, its value can be subject to inflation if too much is printed or created • Without backing of any commodity, it is dependent on the trust of people in the central authority to control the money supply and stabilize the economy. • In case of hyper inflation where fiat money lose its value, it would be almost impossible to restore the value of the money. It’s important to note, that historically countries have been known to abuse the printing of money, which led to hyper inflationary conditions. Thus the government’s and central bank’s monetary policies are key to keeping the stability of fiat money.