Monetarism is a powerful economic theory that argues controlling the money supply is the primary tool to influence economic activity and combat inflation. Economists and investors use this theory to understand how changes in the amount of money
Macroeconomics
Disinflation Explained: A Slower Inflation Rate – Causes, Impacts and Examples
What's it: Disinflation is a situation in which the price level increases at a slower rate of growth. In other words, inflation is still positive but lower than the previous period. For example, suppose the inflation rate slowed from 3% inflation in
Invisible Hand: Theory, Mechanism, Criticisms and Modern Role
The invisible hand is a powerful metaphor in economics, representing the unseen forces that guide a free market toward an equilibrium. Imagine millions of individuals and businesses making independent decisions, yet somehow, the market magically
Liquidity Trap Explained: Stuck at a Zero Rate – Causes, Impacts, Solutions
What's it? A liquidity trap is a situation in which an expansionary monetary policy cannot further lower interest rates. As a result, these policies are unable to generate economic growth or push up the inflation rate. In simpler terms, the central
Macroeconomic Equilibrium: Short Run Vs. Long Run
What's it? A macroeconomic equilibrium occurs when aggregate supply equals aggregate demand. Aggregate supply represents the total output of goods and services produced by firms within an economy at a given price level. On the other hand, aggregate
Purchasing Power of Money Explained: How Much You Can Buy (Inflation’s Impact)
What's it: The purchasing power of money is a currency's ability to convert it to goods and services. In other words, it is the conversion rate of money towards goods and services. Another term for the purchasing power of money is the real value of
The Loanable Funds Market: Understanding Borrowing and Lending in the Economy
The loanable funds market acts as the engine that drives borrowing and lending within an economy. Imagine the economy as a giant lending circle. People set aside money they don't spend (savings), businesses need funds to grow, and the government
Austerity Policy: Balancing Debt vs. Growth (Pros & Cons)
What's it: Austerity policy is an action by the government to reduce government debt. The government usually adopts it when debt is too high, hence weighing economic performance. High debt tends to be out of control. It is dangerous and
Potential GDP: Definition, Calculation, Determinants, Importance
What's it: Potential GDP refers to the maximum output an economy can produce using its existing economic resources. It represents an economy's long-run aggregate supply. At this level of output, the economy will fully utilize all its resources and
Decoding the Aggregate Demand Curve: Understanding Its Slope and Determinants
What's it: An aggregate demand curve is a graph showing the inverse relationship between aggregate demand and the price level. Aggregate demand represents the total demand from four macroeconomic sectors: household, business,
Supply-Side Policy: Growth Without Inflation (Tools, Pros & Cons)
What's it? Supply-side policy is a type of economic policy that focuses on aggregate supply. It seeks to increase an economy's productivity, efficiency, and potential capacity. Supply-side policies can involve government spending on education and
Sovereign Debt: Understanding National Borrowing – Indicators, Impacts, Pros, Cons
What's it? Sovereign debt is debt issued or guaranteed by a country's government. In other words, it is debt securities issued by the national government. This is different from municipal debt, where the issuer is the local government.Like other