Economics
scarcity: everyone cannot have everything
economics: how we make choices when there is not everything to choose from
trade: since everyone cannot have everything, we trade. why do we trade?: because we might be least worst than everyone at one thing
market: where buyers and sellers interact
incentives: something that motivates someone to do something
equilibrium price: magical number where someone who wants to buy finds someone who wants to sell at that price
money is just a medium of exchange | unit of account
interest is the cost of borrowing
markets coordinate through prices and incentives higher prices give produces an incentive to make more lower prices give consumers an incentive to buy more, millions of individual decisions (what to buy, what to sell, how much to produce) are coordinated through these price signals and incentives - this is called invisible hand, market forces naturally coordinate economic activity
demand: how much people want at a certain price
supply: how much people are willing to make of that thing at a certain price
supply chain: sequence of steps that turn a raw stuff into finished stuff and moves it around
all supply chains start with land: natural resources labor: people capital: man made stuff (tractors, computers)
GDP: gross domestic product = monetary value of goods and services products within the borders of a country in a year of quarter
how to calculate gdp approahces:
gdp doesnt calculates:
unpaid labour, black market, selling weapons
gdp per capita: gcp divided by population to compare living standards
what makes gdp go up
more capital, better technology, higher labour productivity, somtimes just more people
growth isnt always good:
global warming, pollution
gdp is sensitive to business cycles: recession - recovery - recovery
aggregate demand: total demand
aggregate supply: total output capacity
demand outpaces supply, prices go up = inflation
supply collapses people still want stuff, prices will go up anyway
demand and supply collapses = stagflation = depression
money is a medium of exhange that people aceept in return of goods and services
if enough people belive a thing is moeny then it is
also acts as a unit of account and a store of value
consumer price index = an index that measures the monthly change in prices paid by consumers.
monetary expansion = printing more money, leads to rising prices = inflation
central banks decide how much money to print. they do:
interest rates = price of borrowing moeny
high rates = capital more expensive to borrow
low rates = capital cheaper to borrow leading to more spending and investment
tight monetary policy = fighting inflation
loose monetary policy = boosting growth
quantitative easing = when central banks buy financial assets (e.g. govt bonds from commercial banks to pump money into economy)
fractional reserve banking = banks keep a fraction of deposits in reserve
bank run = all people panic to get their money = bank collapses
deposit insurance = to avoid panic
taxes = mandatory payments from people and businesses to the state
income tax = a slice of your pay check
corporate tax = a slice of your company profit
sales / VAT tax = a slice of what you spend
property tax = a slice of your house
capital gains tax = a slice of our successful invstment
wealth tax = a slice of rich people existence
excise tax = a slice of bad habits (ciggaretes)
progressive tax = higher incomes pays higher taxes
regressive tax = low income earners pays higher taxes
flat tax = dont care who you are
budget deficit = spending > taxes
budget surplus = spending < taxes (rare)
to cover deficits = govts borrow money or issue bonds
bonds = a paper issued by govt, buy this paper and we will pay you back with interst
total acumulated deficits over time = national debt
debt is fine if used for productive investment stays sustainable interest rates are low debt stays the same over time
debt is bad if fund vote winning nonsense causes inflation higher interest
servicing the debt = paying the debt with more debt
in extreme cases govt can default
default = dont pay anything
international trade = trading country speciality against something they are worse at
increaes efficiency
lowers prices
expands variety
spreads technology
structural adjustment = some industries get crushed due to comparative advantage
people dont like being adjusted so govts impose
tarrifs: taxes on imports
quotas: quantity limits
subsidies: money to help local producers cheap the free market
embargoes: no trade for you
trade happens in money
japan trades cars to US, japan would need yen not dollars
dollars get exchanged for yen
foriegn exchange = how much currecny you get against another
currencies can be floating or fixed based
floating is based on supply and demand
fixed is pegged to something like dollar or gold kept by force/willpower
exchange rate becuase of interest rates trade balances inflation investor confidence coups wars scandals tweets
if currency depriciates:
exports get cheaper
expensive imports
if currency appreciates
cheaper imports
expensive exports (bad for local producers)
currency manipulation: countries tweak their currency to thier own benefits
currency crises: country borrows in foriegn currency, and local currency crashes, repaying that debt becomes harder
jobs = market where product is human time, firms buy it, price is wages, more demand = higher wages, lower demand = lower wages.
firms only hire you only ig your output is more than your wage
raise minimum wages, increases the prices
wage gap = some people earning more, due to skills
stocks = aka equity, secruity that respresents the ownerhsip of a fraction of the issuing corporation
bonds = a loan made by an investor to a borrower, corporate or governmental
derivative = a type of financial contract whose value is dependent on underlying asset/group of assets.
efficient market hypothesis = stock asset prices reflect all available public information (news, quarterly earnings etc)
bonds are useless once the govt defaults.
many people dont invest, banks, hedge funds, pensions do it for you
safe assets: gold, cash, treasury bills, defense stocks
risky assets: meme stocks, startups, derivatives, crypto
development economics