The Three Economic Sectors

The Three Economic Sectors

According to the three-sector theory, all economic activity can be classified into one of three sectors: the primary sector, the secondary sector and the tertiary sector. As a rule of thumb, we say the more advanced an economy is, the more its focus shifts from the primary, through the secondary […]

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Three Types of Unemployment

The Three Types of Unemployment

Unemployment exists in every economy around the world. However, the percentage of workers who are unemployed and the reasons why they were laid off can be very different. Therefore, economists can use unemployment data as an economic indicator to assess the health of an economy. To do this, they differentiate […]

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Types of Costs of Production

Types of Costs of Production

To analyze and understand firm’s production decisions it is important to know the different types of costs they face during this process. There are a number of different types of costs of production that you should be aware of: fixed costs, variable costs, total costs, average costs, and marginal costs. […]

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Factors that Cause a Shift in the Supply Curve

Factors that Cause a Shift in the Supply Curve

The supply curve shows how much of a good or service sellers are willing to sell at any given price. However, it is not constant over time. Whenever a change in supply occurs, the supply curve shifts left or right (similar to shifts in the demand curve). An increase in […]

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Factors that Cause a Shift in the Demand Curve

Factors that Cause a Shift in the Demand Curve

The demand curve tells us how much of a good or service people are willing to buy at any given price (see Law of Supply and Demand). However, we know that demand is not constant over time. As a result, the demand curve constantly shifts left or right. Depending on […]

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How to Calculate the Money Multiplier

How to Calculate the Money Multiplier

In a fractional reserve banking system, most of the money supply is generated by commercial banks. This is possible because the banks only have to hold a fraction of all deposits as reserves. That means, they can use the rest to make loans and thereby create new money. The maximum […]

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Header Fractional Reserve Banking

How Fractional Reserve Banking Works

Fractional reserve banking is a banking system in which banks only hold a fraction of the money their customers deposit as reserves. This allows them to use the rest of it to make loans and thereby essentially create new money. This gives commercial banks the power to directly affect money […]

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Central Banks and Monetary Policy

Central Banks and Monetary Policy

Central banks are independent national institutions that provide financial and banking services. One of their main focuses is monetary policy, i.e. the regulation of money supply within a nation’s economy. Monetary policy is necessary to control inflation and ensure the stability of the financial system. Thus, central banks such as the […]

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Three Measures of Money Supply

Three Measures of Money Supply

Money supply (i.e. money stock) is defined as the total quantity of money circulating in the economy at a particular time. It is commonly used by many countries as an indicator of economic performance. However, in our economic system money is not limited to cash anymore. There are a number of […]

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The Difference between Bond Markets and Stock Markets

The Difference between Bond Markets and Stock Markets

Financial Markets bring together individuals who want to save money with other individuals or companies who want to raise money. The bond market and the stock market are the two most important types of financial markets. They provide capital through the issuing of bonds or stocks, respectively. Two fundamentally different approaches, that each […]

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