Category: Macroeconomics

GDP is, without a doubt, one of the most common measures of economic strength. It is used by economists and policymakers to measure and compare the economic power of countries all around the world (see also Gross Domestic Product). In an earlier article, we have created a list of the […]

In economics, supply is defined as the quantity of a specific good or service that producers are willing to provide over a given period of time. This definition looks at all producers combined (i.e. aggregate data). However, individual producers may be willing to provide significantly different quantities of any given […]

Trade barriers are restrictions on international trade imposed by the government. They are designed to impose additional costs or limits on imports and/or exports in order to protect local industries. These additional costs or increased scarcity result in a higher price of imported products and thereby make local goods and […]

To measure changes in the overall price level in an economy, policy makers and economists monitor a number of different economic indicators. The two most important ones are the GDP deflator and the Consumer Price Index (CPI). Even though they usually show similar results, there are two important differences between […]

The GDP deflator is a measure of the price level of all domestically produced final goods and services in an economy. It is sometimes also referred to as the GDP Price Deflator or the Implicit Price Deflator. It reflects changes in the average price level within the economy. Therefore, it […]

Interest rates are a fundamental part of financial economics. They help us evaluate and compare different investments or loans over time. However, if we compare financial data over time, we have to consider the effects of inflation. This is why we distinguish between two different types of interest rates in […]

Unemployment exists in every economy around the world. However, the percentage of unemployed workers 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 between at […]

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 […]

Fractional reserve banking is a banking system in which banks only hold a fraction of the money their customer deposits 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 the […]

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 […]