background preloader

Government debt

Government debt
Government debt (also known as public debt, national debt and sovereign debt)[1][2] is the debt owed by a central government. (In federal states, "government debt" may also refer to the debt of a state or provincial, municipal or local government.) By contrast, the annual "government deficit" refers to the difference between government receipts and spending in a single year, that is, the increase of debt over a particular year. Government debt is one method of financing government operations, but it is not the only method. Governments can also create money to monetize their debts, thereby removing the need to pay interest. But this practice simply reduces government interest costs rather than truly canceling government debt,[3] and can result in hyperinflation if used unsparingly. As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. History[edit] The sealing of the Bank of England Charter (1694) By country[edit] Risk[edit] Related:  Economics

Inflation In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.[1] When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.[2][3] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the consumer price index) over time.[4] The opposite of inflation is deflation. History[edit] Annual inflation rates in the United States from 1666 to 2004. Historically, infusions of gold or silver into an economy also led to inflation. The adoption of fiat currency by many countries, from the 18th century onwards, made much larger variations in the supply of money possible. Related definitions[edit] Measures[edit] Other common measures of inflation are: Effects[edit] where

Macroeconomics Circulation in macroeconomics. Macroeconomics (from the Greek prefix makro- meaning "large" and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies.[1][2] With microeconomics, macroeconomics is one of the two most general fields in economics. While macroeconomics is a broad field of study, there are two areas of research that are emblematic of the discipline: the attempt to understand the causes and consequences of short-run fluctuations in national income (the business cycle), and the attempt to understand the determinants of long-run economic growth (increases in national income). Basic macroeconomic concepts[edit] Output and income[edit] Unemployment[edit] Main article: Unemployment A chart using US data showing the relationship between economic growth and unemployment expressed by Okun's law. Inflation and deflation[edit]

Unemployment Unemployment occurs when people are without work and actively seeking work.[1] The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. During periods of recession, an economy usually experiences a relatively high unemployment rate.[2] According to International Labour Organization report, more than 197 million people globally or 6% of the world's workforce were without a job in 2012.[3] There remains considerable theoretical debate regarding the causes, consequences and solutions for unemployment. Classical economics, New classical economics, and the Austrian School of economics argue that market mechanisms are reliable means of resolving unemployment. Definitions, types, and theories[edit] On the other hand, cyclical unemployment, structural unemployment, and classical unemployment are largely involuntary in nature. Full employment[edit]

Exchange rate In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, FX rate or Agio) between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency.[1] For example, an interbank exchange rate of 119 Japanese yen (JPY, ¥) to the United States dollar (US$) means that ¥119 will be exchanged for each US$1 or that US$1 will be exchanged for each ¥119. In this case it is said that the price of a dollar in terms of yen is ¥119, or equivalently that the price of a yen in terms of dollars is $1/119. Exchange rates are determined in the foreign exchange market,[2] which is open to a wide range of different types of buyers and sellers where currency trading is continuous: 24 hours a day except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday. Retail exchange market[edit] Quotations[edit] Exchange rates display in Thailand Main article: Currency pair

Interest rate An interest rate is the rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors). Specifically, the interest rate is a percentage of principal paid a certain number of times per period for all periods during the total term of the loan or credit. Interest rates are normally expressed as a percentage of the principal for a period of one year, sometimes they are expressed for different periods like for a month or a day. Different interest rates exist parallelly for the same or comparable time periods, depending on the default probability of the borrower, the residual term, the payback currency, and many more determinants of a loan or credit. For example, a company borrows capital from a bank to buy new assets for its business, and in return the lender receives rights on the new assets as collateral and interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower. is widely used.

Currency A currency (from Middle English: curraunt, "in circulation", from Latin: currens, -entis) in the most specific use of the word refers to money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins.[1][2] A more general definition is that a currency is a system of money (monetary units) in common use, especially in a nation.[3] Under this definition, British pounds, U.S. dollars, and European euros are examples of currency. These various currencies are stores of value, and are traded between nations in foreign exchange markets, which determine the relative values of the different currencies.[4] Currencies in this sense are defined by governments, and each type has limited boundaries of acceptance. Other definitions of the term "currency" are discussed in their respective synonymous articles banknote, coin, and money. History[edit] Early currency[edit] Cowry shells being used as money by an Arab trader. Coinage[edit] Nonconvertible

Balance of trade The commercial balance or net exports (sometimes symbolized as NX), is the difference between the monetary value of exports and imports of output in an economy over a certain period, measured in the currency of that economy. It is the relationship between a nation's imports and exports.[1] A positive balance is known as a trade surplus if it consists of exporting more than is imported; a negative balance is referred to as a trade deficit or, informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance. Understand- Balance of Trade[edit] Trade, in general connotation, means the purchase and sales of commodities. Policies of early modern Europe are grouped under the heading mercantilism. Definition[edit] The balance of trade forms part of the current account, which includes other transactions such as income from the net international investment position as well as international aid. Factors that can affect the balance of trade include:

Economic policy Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labor market, national ownership, and many other areas of government interventions into the economy. Most factors of economic policy can be divided into either fiscal policy, which deals with government actions regarding taxation and spending, or monetary policy, which deals with central banking actions regarding the money supply and interest rates. Such policies are often influenced by international institutions like the International Monetary Fund or World Bank as well as political beliefs and the consequent policies of parties. Types of economic policy[edit] Almost every aspect of government has an important economic component. Macroeconomic stabilization policy[edit] Fiscal policy, often tied to Keynesian economics, uses government spending and taxes to guide the economy. Notes

Gross national product Gross national product (GNP) is the market value of all the products and services produced in one year by labor and property supplied by the citizens of a country. Unlike Gross Domestic Product (GDP), which defines production based on the geographical location of production, GNP allocates production based on ownership. GNP does not distinguish between qualitative improvements in the state of the technical arts (e.g., increasing computer processing speeds), and quantitative increases in goods (e.g., number of computers produced), and considers both to be forms of "economic growth".[1] Basically, GNP is the total value of all final goods and services produced within a country in a particular year, plus income earned by its citizens (including income of those located abroad)(no need to minus income of non resident as income includes of only its citizen). Gross National Product (GNP) is often contrasted with Gross Domestic Product (GDP). Use[edit] GNP Growth[edit] See also[edit] Sources[edit]

Currency appreciation and depreciation The depreciation of a country's currency refers to a decrease in the value of that country's currency. For instance, if the Canadian dollar depreciates relative to the euro, the exchange rate (the Canadian dollar price of euros) rises: it takes more Canadian dollars to purchase 1 euro (1 EUR=1.5 CAD → 1 EUR=1.7 CAD). When the Canadian dollar depreciates relative to the euro, Canadian goods become more competitive on world markets because their price when exchanged to euro will be lower. The result will be an increase in Canadian exports. On the other hand, European sellers that denominate their goods and services in euros will be less competitive, because European products denominated in euros will be more expensive in Canada. The appreciation of a country's currency refers to an increase in the value of that country's currency. How currency appreciates[edit] See also[edit] References[edit] Google Define: Currency depreciation

Stock market Size of market[edit] Stocks are partitioned in various ways. One common way is by the country where the company is domiciled. For example, Nestle, Roche, and Novartis are domiciled in Switzerland, so they are part of the Swiss stock market. The size of the world stock market was estimated at about $36.6 trillion at the beginning of October 2008.[1] The total world derivatives market has been estimated at about $791 trillion face or nominal value,[2] 11 times the size of the entire world economy.[3] The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Stock exchanges[edit] Stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. Trade[edit] Market participants[edit]

Aggregate demand and aggregate supply This topic is called 'Aggregate demand and supply. But before we look at these concepts, it is important that you understand the 'big picture'. The circular flow of income is a good place to start. It shows all of the money coming into an economy (injections) and all of the money that goes out of an economy (leakages or withdrawals). Let's start with the simplest model. In this very simple model of the whole economy, it is assumed that the households own all the factors of production. The firms then use these factors to produce goods and services. Although this model is very simple, it does emphasise one very important point. So the size of an economy can be measured using either the income, output or expenditure method. Including leakages and injections In this simple model, we have, so far, assumed that the system is completely closed. In the first diagram, E (Expenditure) = O (Output) = Y (Income). It does make sense that savings equals investment. We are still missing something.

Gross domestic product Gross domestic product (GDP) is defined by the Organisation for Economic Co-operation and Development (OECD) as "an aggregate measure of production equal to the sum of the gross values added of all resident, institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs)."[2] GDP estimates are commonly used to measure the economic performance of a whole country or region, but can also measure the relative contribution of an industry sector. This is possible because GDP is a measure of 'value added' rather than sales; it adds each firm's value added (the value of its output minus the value of goods that are used up in producing it). The more familiar use of GDP estimates is to calculate the growth of the economy from year to year (and recently from quarter to quarter). History[edit] The history of the concept of GDP should be distinguished from the history of changes in ways of estimating it. Determining GDP[edit]