What's it: Fiat money is a currency with no intrinsic value but is a legal tender in an economy. An example of fiat money is paper money. The face value of fiat money is what you see, and it appears on the paper. Meanwhile, its real value is how
Monetary Policy
Expansionary Monetary Policy: Boosting Growth with Lower Rates – Goals, Tools, Effects
What's it: An expansionary monetary policy, or a loose monetary policy, is a monetary policy aiming to increase the economy's money supply. The increased money supply should stimulate economic growth through aggregate demand. The injection of money
Gold Standard: Pros, Cons, & History (Why It Ended, Is it Coming Back?)
What's it: A gold standard is a monetary system in which the government pegs the domestic currency to gold. Under this system, the face value of your money is equivalent to the gold you will get when you exchange it. So, the government agreed to
Contractionary Monetary Policy: Taming Inflation With Higher Rates – Tools, Impacts
What's it? A contractionary monetary policy, tight monetary policy, or restrictive monetary policy is a monetary policy aimed at reducing the money supply's growth rate in the economy. Its aim is to reduce the pressure caused by high inflation and to
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
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
Precautionary Demand for Money: Why We Keep a Cash Cushion (Savings & Uncertainty)
Precautionary demand for money might sound complex, but it simply refers to the cash we hold as a buffer against unexpected events. Life throws curveballs, and having a financial safety net provides peace of mind. This demand for readily available
Reserve Requirement: Bank “Vault Cash” & Money Supply – Impacts
Reserve requirement is a regulation that commercial banks must follow. It dictates a specific portion of customer deposits that banks are obligated to hold onto as reserves. These reserves cannot be used for lending and function as a safety net for
Unit of Account: Measuring Value (Why Money Matters)
The concept of "Unit of Account" sits at the very foundation of any economy. It's the common language we use to measure the value of everything we buy, sell, or own. Just like a ruler helps us measure the length in centimeters or inches, money, as a
Monetary Transmission Mechanism: How Monetary Policy Impacts the Economy
The monetary transmission mechanism refers to a process in which the policy rate is transmitted through the economy and ultimately affects the inflation rate. The policy rate, also known as the benchmark rate, is a key tool used by central banks in
Monetary Policy’s Limits: Is Monetary Ineffective?
There are situations where monetary policy can prove ineffective in stimulating the economy or curbing inflation. Monetary policy, a cornerstone of economic management, is often touted as a powerful tool for steering economic growth and inflation.
Money vs. Gold: Storing Wealth Through Inflation
A store of wealth refers to an asset's ability to hold onto its value over time. Just like a sturdy container protects your belongings, a good store of wealth safeguards your purchasing power for the future. Money plays a vital role in our modern
Money Supply: Impacting Inflation and Growth (Measures, Components, Impacts)
Money supply is the aggregate amount of money circulating in the economy. Its measures vary among countries and typically include cash, coins, and balances in current and savings accounts. Imagine it as the lifeblood of the economy, constantly
Seigniorage Explained: Free Money for Government? (Inflation Risk)
Seigniorage is not just a fancy word for a lordship's tax (though it does have historical roots there). In economics, seigniorage refers to the profit a government makes by creating money. This pillar page dives into it, explaining how it works, the
Monetary Policy – Tools for a Controlling Inflation and Growth [Purposes, Types]
Monetary policy plays a critical role in shaping a nation's economic health. It's a set of actions taken by the central bank to influence the money supply and credit availability within the economy. By adjusting these levers, the central bank aims to
Money: Functions, Types, Demand & Supply
What's it: Money is everything we use or accept widely as a means of payment for goods and services, including coins and banknotes. It also functions as a unit of account and a store of value. It replaces barter payments in the modern
Real Money vs Nominal Money: Understanding Value & Inflation
Real money might seem like a straightforward concept – the cash you hold in your wallet or the bills you use for everyday purchases. But there's more to the story than meets the eye. Real money, issued by a central bank, acts as legal tender within a
Money Demand: Explained (Transactions, Precautionary, Speculative)
Money demand is the often-overlooked force behind stable prices in an economy. It refers to the total amount of cash that individuals and businesses choose to hold, instead of investing it in stocks, bonds, or other assets. This concept plays a vital
Monetary Stimulus: Boosting Economies with Lower Rates
Monetary stimulus is a tool used by central banks to influence economic activity. It involves changes in monetary policy designed to increase the money supply in circulation. This strategy aims to stimulate economic growth by making borrowing cheaper
Money Creation Explained: How Banks Create Money
Money creation is the process by which the money supply in an economy expands. It's a fascinating concept that underpins economic activity and influences everything from interest rates to inflation. But how exactly does money get created? This guide
Money Multiplier: Understanding Money Creation – Formula, Impacts
The money multiplier explains how base money, also known as the monetary base, can grow exponentially through the money creation process within a fractional reserve banking system. Essentially, every new unit of base money injected into the economy