For the benefit and education of you the reader and myself that are not well versed in the language of economics, I wanted to write an article on the basics of economics. We use economics everyday when we buy, sell, market ourselves, etc. I’ll discuss 5 important terms and the economic system that we use.
Terms
Diminishing Marginal Utility – As a product increases in supply the less the consumer will derive satisfaction from that product. The fact that a good or service is readily available devalues it in the mind of the consumer. As a result, prices are set accordingly.
Inflation and Deflation – Inflation occurs when a good or service is in high demand and supply is low. Companies then have to increase prices to make a profit. Deflation describes when a product is in low demand and supply is high. Prices must be dropped in order to get consumers to buy the readily available product.
Interest Rates – Interests rates are utilized when loans are taken out to pay for a good or service. These rates are used as compensation opportunity costs and risk of no return. Interest rates are high or low depending on the risk the lender deems the borrower.
Fiscal Policy – Fiscal policy describes how governments monitor and influence their nations economy by controlling its spending and tax rates. This concept states that increased spending and low tax rates will stimulate economic growth and a decrease in spending and increase in taxes will slow it down.
Monetary Policy- Monetary Policy calls for the drafting, announcement, and implementation of the efforts of central banks or currency boards to adjust a nations supply of money. Buying or selling government bonds or altering interest rates is one way of achieving this.
American Economic System
By now you’ve probably wondered what type of economic system the US has. The answer is a mixed market system. The US runs on capitalism and socialism. The government has controlled various industries for decades by controlling their markets and regulating their influence and power in the economic world in favor of competition between companies. This is the socialist part of the economy. However, the nation allows and has allowed for a great deal of freedom to consumers and industries to create and run their companies without consequence or regulation. This is an example of the free market or capitalism.
Economics controls every aspect of our lives. Our economic system has developed over the centuries and decades since the nations government was founded. The current system the US has today is a mixed market system which, like all systems has its pros and cons.
Hopefully, the 5 terms explained above gives you a beginners look into the economic and financial world. Enjoy success!
References:
https://www.investopedia.com/ask/answers/111414/what-difference-between-inflation-and-deflation.asp
https://www.investopedia.com/terms/i/interestrate.asp
https://quickonomics.com/12-things-you-know-economics/
https://www.investopedia.com/insights/what-is-fiscal-policy/
https://www.investopedia.com/terms/m/monetarypolicy.asp
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