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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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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The Efficiency Wage Theory

According to the Efficiency Wage Theory firms can operate more efficiently and become more productive if they pay wages above the equilibrium level. There are actually four different theories, according to which firms can benefit in four different ways from paying efficiency wages: higher employee effort, lower employee turnover, attracting higher quality employees, and more […]

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Calculating Consumer Price Index (CPI)

The Consumer Price Index (CPI) is an indicator that measures the average change in prices paid by consumers for a representative basket of goods and services over a set period of time. It is widely used as a measure of inflation, which in turn is a key indicator to describe […]

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Five Types of Economic Efficiency

Economics is all about efficiency. Most economic issues arise because of scarce resources. Starting from there, we often have to find ways to use, produce and distribute those resources in the best possible way (i.e. efficient). However, depending on the issue we are looking at, there may be different factors […]

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Government Policies to Reduce Poverty

Poverty is a problem everywhere in the world. In some countries it is more severe than in others, but there are always some people who have to live below the poverty line. The poverty line describes an absolute level of income below which an individual or family is deemed to […]

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