Global Economic Shifts: From WWI to the Great Depression
The Economic Aftermath of World War I
European exports fell dramatically during the four years of war. Consequently, overseas countries, especially the USA and Japan, developed industries producing substitute goods. The large volume of debt incurred by some of the victorious countries, particularly Britain and France, caused these Western European nations to become debtors. In contrast, the vanquished nations, Germany and Austria, had not incurred significant foreign debts during the war. However,
Read MoreKey Concepts in Monetary Economics and Financial Markets
Functions of Money
Money serves as a means of exchange, widely accepted by the community for daily transactions and to settle debts. It facilitates exchange and eliminates the need for bartering.
As a unit of account, money is used to calculate the value of various goods and services.
Money also functions as a store of value, meaning it can be saved and retrieved later without significant loss of purchasing power.
Money Creation
Money is primarily created when a bank grants a new loan. Three main agents
Read MoreDavid Ricardo’s Enduring Economic Principles
David Ricardo was one of the fathers of classical economics. He began his business career as a clerk in his father’s brokerage firm. Some years later, a London bank, impressed by the young man’s ability, provided him with enough capital to establish his own brokerage. Soon, David Ricardo amassed an enormous fortune.
His most important work was Principles of Political Economy and Taxation, published in 1817. This treatise is considered the most mature and accurate presentation of classical economics.
Read MoreUnderstanding Labor Markets and Economic Dynamics
Characteristics of the Population
The main reference of any labor market is the population from which it draws. The population is the number of people who live in a particular geographical area, but not the entire population equally participates in productive processes. Depending on their degree of participation in the productive process, the population can be categorized as:
- Working-age population: includes the employed and the unemployed.
- Inactive population: only consumes.
Once grouped, population
Read MoreKey Economic Concepts and Chinese Vocabulary
Economics Fundamentals
Production and Growth
Productivity
Refers to the amount of goods and services produced for each hour of a worker’s time.Rule of 70
A rule stating that if a variable grows at a rate of x percent per year, that variable will double in approximately 70/x years. For example, a growth rate of 7% would see income per person doubling in 10 years (70 divided by 7), compared to 54 years for a 1.3% growth (70 divided by 1.3 is approximately 53.8).Factors of Production
- Physical Capital
- Human
Money Demand and How Banks Create Money
Money Demand
People demand money to meet expenses and are also interested in holding some of their wealth in the form of money because of its purchasing power, i.e., the amount of goods that can be bought with it.
The public is not interested in the *amount* of coins and notes held, but rather the *amount of goods* they can buy with them (purchasing power).
The reasons why money is demanded are:
- To purchase goods and services (individuals).
- To pay for raw materials and salaries (companies).
Several factors
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