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macroeconomics, and why should you care? A quick intro to how the world works.",3,[38],{"id":39,"data":40,"type":28,"version":28,"maxContentLevel":36,"pages":42},"ddc7091f-6dd9-45bc-9113-b605a8684aa7",{"type":28,"title":41},"Understanding Macroeconomics",[43,49,66,80],{"id":44,"data":45,"type":25,"maxContentLevel":36,"version":28},"baa12826-480f-4022-996d-a574a69db109",{"type":25,"title":46,"contentRole":28,"markdownContent":47,"audioMediaId":48},"Why should you care about macroeconomics?","When inflation is rising, and an economic downturn is looming, how can you make the best decisions?\n\nWhat would happen if we went to a four-day working week?\n\nHow can we know if an economy is heading for boom or bust?\n\nAnd wait, what the heck is inflation anyway?\n\nThe answer to these questions and more can be found in **macroeconomics**.\n\n![Graph](image://789754c3-bdc3-422e-a05c-92aa1c17a739 \"A line graph showcasing inflation in the US between 2011 and 2023. Image: Wikideas1, Public domain, via Wikimedia Commons\")","6313b733-203c-427a-8d7c-9d0403e51535",{"id":50,"data":51,"type":25,"maxContentLevel":36,"version":28,"reviews":55},"3a184a14-1ce8-46b3-b1f6-3aa00928a8e4",{"type":25,"title":52,"contentRole":28,"markdownContent":53,"audioMediaId":54},"What even is macroeconomics?","Macroeconomics is the study of economies on a macro scale. It's not individual loans, or house prices, or the price of fish. It is all of these and more.\n\n![Graph](image://da5770e5-82a7-4c9b-ba74-6f57607d0956 \"Prices of fish in a supermarket. Image: Stolbovsky, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nIt is the knowledge of what makes a nation boom, and what makes it sink. It is unemployment and affluence. It is soaring prices and plummeting demand.\n\nMost importantly, it is how all of these things are connected, and how changes in one affect everything else.\n\nAnd believe us, **macroeconomics affects everyone**.","f5f70be8-2dd8-4c3b-b255-477e20f075d8",[56],{"id":57,"data":58,"type":59,"version":25,"maxContentLevel":36},"f796bd06-bfa9-4e69-ab2b-1c1ead4cb218",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":60,"binaryCorrect":62,"binaryIncorrect":64},11,[61],"The effects of macroeconomics are felt by who?",[63],"Everyone",[65],"Financial institutions",{"id":67,"data":68,"type":25,"maxContentLevel":36,"version":28,"reviews":72},"8f2bf1ef-d2cf-4dc4-8dcc-ebdbcb562260",{"type":25,"title":69,"contentRole":28,"markdownContent":70,"audioMediaId":71},"What is macroeconomics for?","Through understanding macroeconomics, economists try to achieve three things:\n\nTo **boost economic growth, reduce unemployment, and stop inflation and deflation.**\n\n![Graph](image://7de6f84a-22c6-4928-b86c-efe2f9ee5661 \"Graph showcasing Zimbabwe inflation between 2002-2011. Image: Wikideas1, CC0, via Wikimedia Commons\")\n\nUnderstanding macroeconomics can help you make sense of situations such as in 2008-2009, when the Zimbabwean Reserve Bank issued $100 trillion banknotes, that were practically worthless.\n\nOr how in 2012, oil accounted for 95% of Venezuela’s exports. Yet, in 2020, the average citizen rejoiced if they only had to queue overnight to fill up their car.\n\n![Graph](image://61199192-eb80-4169-9a29-8401739e9a0b \"A petrol pump in Venezuala. Image: AVM, CC0, via Wikimedia Commons\")","a0ca009e-8814-4237-8e3c-759d22f6cd76",[73],{"id":74,"data":75,"type":59,"version":25,"maxContentLevel":36},"c553c22e-8a5d-4952-b684-106aeca921d2",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":76,"clozeWords":78},[77],"Macroeconomics is concerned with boosting economic growth, reducing unemployment, and stopping inflation and deflation.",[79],"unemployment",{"id":81,"data":82,"type":25,"maxContentLevel":36,"version":28,"reviews":86},"e41f68dd-85d8-4708-bf66-d8a90b1f337a",{"type":25,"title":83,"contentRole":28,"markdownContent":84,"audioMediaId":85},"Why should you care?","Through understanding macroeconomics, we can better understand the world around us. The seemingly invisible forces that push economies up and pull them down become visible, and we can start to see more clearly how to make better decisions for ourselves, our families and our businesses.\n\nThis is even more relevant in a Post COVID world, where economic shocks and irrational behavior (toilet paper anyone?), have caused disruption that we are still recovering from.\n\n![Graph](image://9e00a9d5-1aa9-4d59-9313-951842c97ce7 \"Empty toilet paper shelves in a supermarket. Image: Danielteolijr (D.D.Teoli Jr), CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nForget what you know about how money works.\n\nLearn to ignore the hype\n\nAnd start to decode the ebb and flow of macroeconomics.","058ac69c-d355-49fd-b8e6-a91de7bafb88",[87],{"id":88,"data":89,"type":59,"version":25,"maxContentLevel":36},"fa3fc77c-dffa-410c-b719-02609e6dd171",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":90,"multiChoiceCorrect":92,"multiChoiceIncorrect":93},[91],"What is the study of large-scale, interconnected economic factors called?",[16],[94,95,96],"Microeconomics","Machoeconomics","Muchoeconomics",{"id":98,"data":99,"type":29,"maxContentLevel":36,"version":36,"orbs":102},"6284062c-9ef9-4345-bc8b-7b725f1dd2a0",{"type":29,"title":100,"tagline":101},"Disasters of Macroeconomic Proportions","Begin with one of the more dramatic aspects of macroeconomics – financial crises – and see why macroeconomics matters.",[103,218,314],{"id":104,"data":105,"type":28,"version":36,"maxContentLevel":36,"pages":106},"08fbf69d-3a59-4684-b73f-f83385d7899d",{"type":28,"title":41},[107,143,161,186],{"id":108,"data":109,"type":25,"maxContentLevel":36,"version":36,"reviews":113},"3dfdf502-0c0a-480c-837c-8212dbff7c11",{"type":25,"title":110,"contentRole":28,"markdownContent":111,"audioMediaId":112},"Macroeconomics and Its Mandates","What should a country do to ensure that it meets as much of its population’s infinite needs as possible, given its finite resources? Macroeconomics focuses on an economy’s productivity to answer this.\n\nMacroeconomic policy has 3 main goals. **The first is to promote economic growth, as measured by GDP**: countries aim to operate at full production in order to achieve maximum income. Additionally, they strive to sustainably expand capacity so they can grow. It’s similar to how a professional wants to earn as much as they can given their skill set and work experience. Why settle for earning less than $100,000 if you know you're worth that much? Furthermore, if you're already being paid your worth, you would try to up-skill yourself to grow your earnings potential.\n\n![Graph](image://a6308aa5-5d05-4441-b953-e59d7cb70d98 \"Demonstrations against unemployment in India. Image: No machine-readable author provided. Soman assumed (based on copyright claims)., CC BY-SA 3.0 \u003Chttp://creativecommons.org/licenses/by-sa/3.0/>, via Wikimedia Commons\")\n\n**The second goal of macroeconomic policy is to limit unemployment**: high unemployment indicates that an economy is not using all its human resources efficiently. The **third goal is to keep price levels stable**: both deflation and uncontrolled inflation wreak havoc on an economy, thus requiring a delicate balance to keep the system chugging along.","c8cf1e5b-8eee-456c-a07e-6693c5587c5b",[114,120,129,136],{"id":115,"data":116,"type":59,"version":25,"maxContentLevel":36},"3611ef81-1843-4782-a3fc-da7bd6bbdb41",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":117,"clozeWords":119},[118],"The second goal of macroeconomics is to limit unemployment",[79],{"id":121,"data":122,"type":59,"version":25,"maxContentLevel":36},"498bcacb-f171-46c8-b69e-298f2f22766e",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":123,"binaryCorrect":125,"binaryIncorrect":127},[124],"Macroeconomics aims to keep price levels...",[126],"stable",[128],"variable",{"id":130,"data":131,"type":59,"version":25,"maxContentLevel":36},"9e1feedf-2336-4170-b19a-617454c0863c",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":132,"clozeWords":134},[133],"Macroeconomics focuses on an economy's productivity",[135],"productivity",{"id":137,"data":138,"type":59,"version":25,"maxContentLevel":36},"da23f66b-a61d-4ffc-93fa-92bb38e74068",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":139,"activeRecallAnswers":141},[140],"What is the standard metric for measuring a country's annual economic growth?",[142],"Gross Domestic Product (GDP)",{"id":144,"data":145,"type":25,"maxContentLevel":36,"version":36,"reviews":149},"133a061a-b9c1-465c-bc78-5944a76daa87",{"type":25,"title":146,"contentRole":28,"markdownContent":147,"audioMediaId":148},"Why Macroeconomics Matters","Understanding macroeconomics greatly helps individuals and businesses make better decisions. On a personal level, an appreciation for macroeconomics paves the way for informed choices. Depending on where the economy stands, the feasibility of certain life choices – switching jobs, asking for a raise, or taking out a loan for big-ticket purchases – ebbs and flows. For instance, should you attempt a career shift during uncertain times, or should you wait until the economy is stable?\n\n![Graph](image://3b485c6d-b692-43f7-8bae-040b8cfb7320 \"Big ticket purchase example: buying a house. Image: alanharder.ca, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\nWhen the economy is on a downturn, a basic knowledge of macroeconomics keeps us clear-headed and calm. Understanding where the government’s role in macroeconomic issues starts and stops, and accepting that recovery can take time, saves us from disillusionment and despair.\n\nOn a professional level, managers with a grasp of macroeconomics are better-equipped to analyze current circumstances to decide whether they should expand the business, lay off workers, or keep inventory levels low. Timing is a vital element of good business decisions and helps firms weather economic storms, potentially signifying the difference between survival and bankruptcy in the worst of times.","becd4b28-7562-4a9c-ae39-b3e76dbf8bf5",[150],{"id":151,"data":152,"type":59,"version":25,"maxContentLevel":36},"3dafd779-6664-4028-8216-84a7408deb08",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":153,"multiChoiceCorrect":155,"multiChoiceIncorrect":157},[154],"Using Macroeconomics, we aim to make decisions",[156],"rationally",[158,159,160],"emotionally","arrogantly","humbly",{"id":162,"data":163,"type":25,"maxContentLevel":36,"version":36,"reviews":167},"3ad3c56e-7f0c-4a9e-8bd9-7840af47e203",{"type":25,"title":164,"contentRole":28,"markdownContent":165,"audioMediaId":166},"The Worst Economic Downturn in Modern History","![Graph](image://8936500d-1c1e-474e-9039-281e621079a1 \"Unemployed men queue outside a soup kitchen. Image: National Archives at College Park, Public domain, via Wikimedia Commons\")\n\nTo those familiar with it, **the Great Depression** conjures up images of lines of men, sometimes so long they rounded the street corner, hungrily waiting for food at the soup kitchen or bread line. Unemployment reached an all-time high during this period, peaking in May 1933, when roughly 1  in 4 workers was unemployed.\n\nThis stands in stark contrast to the growth and prosperity many enjoyed in the Roaring Twenties, when it seemed everyone could afford the new Ford Model T or to hedge their bets in the stock market.\n\nThis prosperity came to a screeching halt on **Black Thursday**, marking the Wall Street Crash of 1929. Panicked investors pulled out funds, signifying a sharp turnaround from optimism-fueled speculation to uncertainty and wariness. By day’s end, 12.9 million shares had been traded in Wall Street, 3 times its then normal trading volume, indicating how frantic the market was as stock prices went into free fall.\n\n![Graph](image://910be08d-4e48-4476-8b71-b6c02c0a549b \"Walter Thornton's Chrysler 75. Image: LaicePsk, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nThe devastation experienced by investors is best reflected in the picture of the investor Walter Thornton, newly bankrupt, trying to sell his 1929 Chrysler 75 for $100 cash. Prior to the crash, it would’ve sold for $1,555 brand new.","8e172e25-9eda-4b2d-b415-2ec564f45841",[168,175],{"id":169,"data":170,"type":59,"version":25,"maxContentLevel":36},"311ea767-afa3-4247-9fce-0931695aa717",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":171,"clozeWords":173},[172],"The amount of stocks traded on Black Thursday was three times the normal volume.",[174],"three",{"id":176,"data":177,"type":59,"version":25,"maxContentLevel":36},"fafeedad-f6d7-4c7d-9083-647e941f1798",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":178,"multiChoiceCorrect":180,"multiChoiceIncorrect":182},[179],"When did the Great Depression peak?",[181],"May 1933",[183,184,185],"August 1983","November 2003","July 2008",{"id":187,"data":188,"type":25,"maxContentLevel":36,"version":36,"reviews":192},"06075785-5b8a-43d8-96de-14bb6f9ec99f",{"type":25,"title":189,"contentRole":28,"markdownContent":190,"audioMediaId":191},"The Ripple Effects of the Great Depression","Speculation and excessive optimism drove Wall Street to unprecedented heights, only to have it crash in 1929, when this optimism proved unsustainable. This then resulted in the **Great Depression**, replacing people’s confidence with tightfisted wariness. Having suffered great losses, businesses scaled back on spending.\n\nThis created an unfortunate feedback loop. Businesses were producing less and required a smaller workforce, leaving many jobless. The average Joe hardly had cash to spend, so business slowed further. From a macroeconomic lens, the US economy halved in 5 years. On an individual level, many had to make do with wage cuts and laid-off workers took on low-paying jobs for which they were overqualified.\n\n![Graph](image://5495e722-6149-47b0-a4c4-3f51a17c5821 \"Unemployed men during the Great Depression. Image: bec, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nDesperate to protect American workers, Congress passed the Smoot-Hawley Tariff Act in 1930, imposing taxes on foreign goods. European countries retaliated by imposing their own taxes on American goods, ultimately leaving the US economy worse off and initiating a global trade war. This, together with the American Midwest’s Dust Bowl drought, exacerbated the situation. In the end, **the depression lasted for 10 years**.","192de4f1-f468-4e0f-85c4-95cfefc37f9d",[193,202,211],{"id":194,"data":195,"type":59,"version":25,"maxContentLevel":36},"98d725b2-10ae-4be3-b557-ca8fafec2936",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":196,"clozeWords":198},[197],"In 1929, speculation and excessive optimism drove Wall Street to unprecedented heights, causing the Great Depression",[199,200,201],"speculation","excessive optimism","Great Depression",{"id":203,"data":204,"type":59,"version":25,"maxContentLevel":36},"a0572319-1243-4ee4-ae26-45c4ad11f93a",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":205,"binaryCorrect":207,"binaryIncorrect":209},[206],"During the Great Depression, business spending",[208],"decreased",[210],"increased",{"id":212,"data":213,"type":59,"version":25,"maxContentLevel":36},"ae7b31c9-9f1c-40fe-babb-63e1a968ea96",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":214,"activeRecallAnswers":216},[215],"What impact did the Great Depression have on the workforce?",[217],"Companies laid off workers, increasing unemployment",{"id":219,"data":220,"type":28,"version":36,"maxContentLevel":36,"pages":222},"3c9c1238-0778-4cb3-bd55-4df27f21cdea",{"type":28,"title":221},"Financial Crises and Their Impact",[223,245,275,300],{"id":224,"data":225,"type":25,"maxContentLevel":36,"version":36,"reviews":229},"395769a4-6cbd-47ff-b200-ed4ba9464288",{"type":25,"title":226,"contentRole":28,"markdownContent":227,"audioMediaId":228},"The 2008 global financial crisis and the US housing market","You might remember that, in **2008**, the US experienced another financial crisis. This time, it was tied to the US housing market crash. Investors had placed funds in financial instruments backed by mortgages – and not just their own funds. Enticed by the promise of high returns, they took out debt to further invest in these financial instruments. As demand for these instruments soared, financial institutions eager to meet the demand grew lax with their screening processes. The average American could easily take a mortgage, whether they could afford it or not.\n\n![Graph](image://d70492ed-c7b2-4a08-a9ba-3f4c8d7699e3 \"US investment bank Lehman Brothers collapse, often considered the climax of the 2008 crisis. Image: David Shankbone, CC BY-SA 3.0 \u003Chttp://creativecommons.org/licenses/by-sa/3.0/>, via Wikimedia Commons\")\n\nOnce homeowners defaulted on their mortgages, their homes were repossessed. Trouble was coming. Repossessed homes re-entered the market, driving housing prices down. Homeowners’ debts were magnified as their homes dropped in value, which resulted in a domino effect when financial institutions woke up to the reality that they were holding on to financial assets that were way too risky and, essentially, overvalued. Ultimately, this led to **the Great Recession**, which occurred from 2007 to 2009.","594b46f4-82ea-44da-bcca-a02f78c262c4",[230,237],{"id":231,"data":232,"type":59,"version":25,"maxContentLevel":36},"664ba9b1-5a3c-47df-9321-13343d257d70",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":233,"activeRecallAnswers":235},[234],"What impact does repossessing homes have on the housing market?",[236],"Housing prices decrease",{"id":238,"data":239,"type":59,"version":25,"maxContentLevel":36},"94aafc8c-bfa2-4b16-9d04-812eea0c5879",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":240,"clozeWords":242},[241],"The Great Recession occurred in 2008 because of faults with the housing market",[243,244],"2008","housing",{"id":246,"data":247,"type":25,"maxContentLevel":36,"version":36,"reviews":251},"90f607b1-c22b-42a6-b92a-fccdaf7d3f58",{"type":25,"title":248,"contentRole":28,"markdownContent":249,"audioMediaId":250},"Irrational exuberance","Although the **Great Recession** and the **Great Depression** stem from two different crashes – the housing and the stock market – they share some similarities. Both recessions were preceded by an extended period of optimism. Investors behaved irrationally, as if placing their money on sure bets.\n\n![Graph](image://1d897984-e95d-4832-a6c7-71385b8f4608 \"People queue outside Northern Rock bank (UK) to withdraw savings. Image: Dominic Alves from Brighton, England, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\nWith the 2008 crisis, we can also point to corporate greed and misguided incentives. Banks that issued more loans earned more revenue, which meant bigger bonuses. So, caution was swept out the door. Unfortunately, checks and balances were lacking. Since financial institutions created increasingly sophisticated financial instruments to take advantage of the housing wave, some of them skipped financial regulators’ radars. The system became less transparent.\n\nLuckily, the US government learned from the Great Depression. Instead of allowing the market to correct itself, as before, the government intervened immediately, propping up institutions that would have otherwise gasped their last breath. Though many people suffered from the Great Recession, it lasted only 18 months, and unemployment peaked at 10%. Has the market finally learned its lessons, and can we spare ourselves from another disaster of this magnitude? Only time will tell.","6a42ebae-3c75-40aa-8461-10d3fab86b1c",[252,261,268],{"id":253,"data":254,"type":59,"version":25,"maxContentLevel":36},"665b20d6-9b99-42ee-9bd7-fdc049fd84a5",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":255,"binaryCorrect":257,"binaryIncorrect":259},[256],"Which category of market failure caused the Great Depression?",[258],"Stock Market",[260],"Housing Market",{"id":262,"data":263,"type":59,"version":25,"maxContentLevel":36},"e63d4fee-8ac5-44cf-8f83-80fb4e2157e3",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":264,"clozeWords":266},[265],"Government intervention stopped the Great Recession from being as bad as the Great Depression",[267],"Government intervention",{"id":269,"data":270,"type":59,"version":25,"maxContentLevel":36},"fd411a4d-546f-44d1-83ad-ff6e160b457e",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":271,"activeRecallAnswers":273},[272],"In the Great Recession, why did some financial institutions slip under the radar of regulators?",[274],"They developed complex financial instruments that were difficult to regulate",{"id":276,"data":277,"type":25,"maxContentLevel":36,"version":36,"reviews":281},"9b164301-51c3-415d-b256-95bc4b893e5e",{"type":25,"title":278,"contentRole":28,"markdownContent":279,"audioMediaId":280},"East Asia in the ‘90s, a boom-bust cycle","Rapid growth marked the years leading up to 1997 in East Asia. Export boomed and a surplus of foreign investment poured in. However, trouble started brewing when other markets like the US started offering higher interest rates, diverting foreign investors away from East Asia and into more attractive markets.\n\nSuddenly, **investment dried up and the economy slowed down**. It became apparent that much of the debt issued years prior was unsustainable – it was invested in projects that rode the wave of optimism but had no hope of profitability. But, clouded by visions of prosperity, financial institutions had turned a blind eye and allowed debt to roll over until they could no longer afford to do so.\n\n![Graph](image://8267ed79-2a16-43e2-bdb0-96440dffbc1b \"Graph showing the Thai Baht & US Dollar exchange rate between 1990-2024. Image: Monaneko, CC BY 3.0 \u003Chttps://creativecommons.org/licenses/by/3.0>, via Wikimedia Commons\")\n\nUnder the weight of foreign debt, the Thai government was forced to abandon the Thai Baht’s peg to the US dollar. As a result, the currency’s value dropped, setting off a chain reaction throughout the Thai equity and property markets.","55934e6d-16e6-4595-afdc-ac8d558e5731",[282,289],{"id":283,"data":284,"type":59,"version":25,"maxContentLevel":36},"c5b11453-1a0b-46ac-ad0d-3511ff3695ff",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":285,"activeRecallAnswers":287},[286],"What caused the East Asia market bust?",[288],"Higher interest rates in other markets, like the United States",{"id":290,"data":291,"type":59,"version":25,"maxContentLevel":36},"e51fa717-d09e-4656-aa0c-ede54243c3c4",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":292,"multiChoiceCorrect":294,"multiChoiceIncorrect":296},[293],"Debt issued in East Asia leading up to 1997 was...",[295],"unsustainable",[297,298,299],"sustainable","counter-balanced","easily eliminated",{"id":301,"data":302,"type":25,"maxContentLevel":36,"version":36,"reviews":306},"a835e9b9-ee53-401a-8a56-169a88e93b4a",{"type":25,"title":303,"contentRole":28,"markdownContent":304,"audioMediaId":305},"1997’s Asian Contagion","The bubble burst, first in Thailand, then in its neighboring countries. A devalued Thai Baht meant importing from Thailand was now cheaper, fueling its export market but simultaneously hurting competing export industries in other East Asian countries. This played into investors’ doubt. If the Thai economy was this precarious, what's to say its neighboring countries wouldn’t be the same?\n\nThe crisis rippled through East Asian countries that had close ties through trade links and financial channels. The South Korean Won lost 50% of its value within a single month. Indonesia saw widespread rioting and ousted its incumbent president. Businesses collapsed across the board.\n\n![Graph](image://53e7764a-53bc-46d7-9bc0-b3b7eaf80467 \"Indonesian riot police behind a brigade. Image: AWG97, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nMost affected countries started showing signs of recovery in 1999. But, until then, the average East Asian endured severe cost cutting, a sharp increase in school dropout rates, and high barriers to gainful employment.","25751da7-7698-431c-a8cd-c206f7658a3d",[307],{"id":308,"data":309,"type":59,"version":25,"maxContentLevel":36},"5257a115-82e6-4ae2-bcb3-b37858f42d72",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":310,"clozeWords":312},[311],"After the 1997 East Asia crash, affected countries saw cost cutting, increased school dropout rates and higher barriers to employment",[210,313],"higher",{"id":315,"data":316,"type":28,"version":36,"maxContentLevel":36,"pages":318},"e2f16f39-b3de-410c-86f9-ac619c886c52",{"type":28,"title":317},"Historical Economic Challenges",[319,358,381,395,417],{"id":320,"data":321,"type":25,"maxContentLevel":36,"version":36,"reviews":325},"3b8ec4ee-9956-4ed1-a26a-37fa91f11d5e",{"type":25,"title":322,"contentRole":28,"markdownContent":323,"audioMediaId":324},"The 1970s stagflation","Let’s shift our attention to a financial crisis that didn't involve excessive optimism. In the 1970s, the US economy experienced something unprecedented – **stagflation**. This involved a combination of rapidly increasing prices, or high inflation, and slow economic growth, or stagnation. The economy was flat as the post-war boom petered out. Increased competition from international players limited production. **Unemployment was growing**, but interestingly, price levels continued to rise as the government expanded its social programs.\n\nTo top it off, the Organization of the Petroleum Exporting Countries (OPEC) announced in late 1973 that it would stop exporting oil to the US. Oil prices skyrocketed. As oil prices quadrupled, families and businesses alike struggled with further instability and uncertainty.\n\n![Graph](image://0b018758-afcc-491a-8e27-c7a0cbc109f3 \"US gasoline ration stamps (never used). Image: Warren K. Leffler, U.S. News & World Report Magazine, Public domain, via Wikimedia Commons\")\n\nUntil then, stagnation and inflation occurred mutually exclusively. The government knew how to address inflation, by cutting back on spending or increasing taxes, and it could address a stagnant economy by boosting government spending or decreasing taxes. But these 2 solutions were in direct conflict with each other, and novel solutions were required for the situation. In the end, the US had to wait out a recession in order for inflation to cool off.","3c2beedc-610c-4ca1-be81-01007d157099",[326,334,341,350],{"id":327,"data":328,"type":59,"version":25,"maxContentLevel":36},"84a7874f-4372-4478-bf3f-33209c3dad4d",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":329,"activeRecallAnswers":331},[330],"What are two ways in which the government can tackle inflation?",[332,333],"Cutting spending","Increasing interest rates",{"id":335,"data":336,"type":59,"version":25,"maxContentLevel":36},"a02e1254-fc81-4c18-8dea-4c96b16bdb91",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":337,"activeRecallAnswers":339},[338],"What limited production in the United States in the 1970s?",[340],"Increased competition from international players",{"id":342,"data":343,"type":59,"version":25,"maxContentLevel":36},"c31e7657-db63-4e42-bb47-3e9981407244",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":344,"binaryCorrect":346,"binaryIncorrect":348},[345],"What does the government do when facing stagnation?",[347],"decrease taxes",[349],"Increasing taxes",{"id":351,"data":352,"type":59,"version":25,"maxContentLevel":36},"ecad67b2-470e-44c4-b559-f92fdcf53f71",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":353,"clozeWords":355},[354],"When inflation and stagnation happen simultaneously, it is called stagflation",[356,357],"stagnation","stagflation",{"id":359,"data":360,"type":25,"maxContentLevel":36,"version":28,"reviews":364},"c3404504-863f-400d-b916-1d832e591eb1",{"type":25,"title":361,"contentRole":28,"markdownContent":362,"audioMediaId":363},"Who wants to be a Zimbabwean trillionaire?","What if, with a single banknote, you could be a trillionaire? Sounds implausible, but somewhere some time ago, that was indeed the case. In 2008-2009, the Zimbabwean Reserve Bank, faced with disastrous hyperinflation, issued **$100 trillion** banknotes – Zimbabwean dollars, that is.\n\nBut holding on to that bill would not have meant much, either then or now. Inflation in Zimbabwe peaked at a 98% daily rate. If you received $100 trillion then but chose to hold on to it another day, you would’ve been able to buy half as much stuff the next day. Nowadays, that same banknote has essentially zero value, except perhaps for its novelty and historic significance.\n\nHow did this $100 trillion banknote come about? And how did Zimbabwe become economists’ poster child for hyperinflation? Zimbabwe’s economy had been struggling for some time before hyperinflation hit. The Government had enacted land reform policies, taking land away from commercial farmers and transferring ownership to small-scale production. Inevitably, production dropped. With mounting debt and collapsing output, the government desperately needed cash. And so, because they could, they printed more money, sending the currency’s value into free fall.\n\n![Graph](image://53aea056-4c67-4333-af83-7d35fdf7cdde \"A Zimbabwean Trillion Dollar Note\")","9f89759f-4f67-462f-a95b-179bc29a94ea",[365,374],{"id":366,"data":367,"type":59,"version":25,"maxContentLevel":36},"be70dab7-a7b4-4eb6-bf79-b3abb884181e",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":368,"binaryCorrect":370,"binaryIncorrect":372},[369],"What impact does printing money have on currency?",[371],"Decreases its value",[373],"Increases its value",{"id":375,"data":376,"type":59,"version":25,"maxContentLevel":36},"e1b212da-5eb1-49ff-8bc7-ef65b115a2e1",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":377,"clozeWords":379},[378],"Transferring land from commercial farmers to small-scale production leads to a decrease in monetary production",[380],"decrease",{"id":382,"data":383,"type":25,"maxContentLevel":36,"version":36,"reviews":387},"f959f10b-2509-4293-af55-ea0dda1e4cc5",{"type":25,"title":384,"contentRole":28,"markdownContent":385,"audioMediaId":386},"Venezuela, a riches to rags story","In 2012, oil accounted for 95% of Venezuela’s exports. Yet, in 2020, the average citizen rejoiced if they only had to queue overnight to gas up their car. Once the richest country in Latin America, **Venezuela paints a dire riches to rags story**. From a prosperous oil-rich nation where basic goods and services were widely accessible, it now sees a population hungry and poor, having lost, on average, 11 kg of body weight between 2015 and 2016.\n\n![Graph](image://9e69d7b0-bbc0-422c-8d12-c650e6136970 \"Venezualan fuel station. Image: George Miquilena, CC BY-SA 3.0 \u003Chttps://creativecommons.org/licenses/by-sa/3.0>, via Wikimedia Commons\")\n\nWhat went wrong? Venezuela flourished when oil prices were high. As oil money pumped into the economy, then-president Hugo Chávez enacted numerous social programs. Unfortunately, during prosperous times, we often fail to plan for the long term. **The Venezuelan leader failed to diversify the economy**, which drew strength from its oil exports alone. So, when oil prices dropped, the economy caved.\n\nAlthough Chávez’s successor, Nicolás Maduro, merely inherited the flailing economy, it was under his rule in 2014 that the economy finally collapsed. Since then, the situation has worsened, resulting in a humanitarian crisis in the once-affluent nation.","fe16ab9c-0289-441f-934c-f8e365d0613e",[388],{"id":389,"data":390,"type":59,"version":25,"maxContentLevel":36},"abf2a150-36e8-4575-b3b7-143f96ea06d6",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":391,"clozeWords":393},[392],"Venezuela failed in large part due to a failure to diversify their economy.",[394],"diversify",{"id":396,"data":397,"type":25,"maxContentLevel":36,"version":36,"reviews":401},"4cac29f2-3868-4716-8f7b-a0494024553a",{"type":25,"title":398,"contentRole":28,"markdownContent":399,"audioMediaId":400},"China’s Great Leap Forward","In the late 1950s, Chairman Mao’s Great Leap Forward led to widespread famine and death. In its bid to accelerate industrialization within its borders, the Chinese government introduced backyard steel furnaces in farms and cities. Warm bodies were needed for steel making, so they diverted farmworkers away from agriculture. But of course, people still had to eat. So, to sustain agricultural output, private farmlands were converted into collectives that the Communist Party controlled centrally, on which toiled the remaining farmworkers and their wives.\n\n![Graph](image://d386d227-442d-4373-9181-b315f86b4077 \"Photograph of Chairman Mao in 1954. Image: Published in Berliner Morgenpost, January 17, 1961, rights managed by ullstein bild, Public domain, via Wikimedia Commons\")\n\nTake a step back and identify what's wrong with this picture. Why are farmworkers working with steel when their expertise lies in agriculture? And why, in their stead, were laborers tending to farms? Unfortunately, output decreased sharply and across the board due to several factors – failed experiments, local politics, unequal food distribution, and natural disasters. So, although a massive amount of input was redirected toward agricultural and industrial production, **the program did not achieve the corresponding output expected** – a disaster in economic terms.","864dfdb0-a21b-4385-b148-d38b2f295659",[402,408],{"id":403,"data":404,"type":59,"version":25,"maxContentLevel":36},"92859e21-90c9-4b50-8866-b5212e32cead",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":405,"clozeWords":407},[406],"Chairman Mao's Great Leap Forward led to a net decrease in production",[380],{"id":409,"data":410,"type":59,"version":25,"maxContentLevel":36},"cce727c8-940b-40f3-9aeb-bb41491aa8a2",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":411,"binaryCorrect":413,"binaryIncorrect":415},[412],"High economic input necessarily results in high economic output.",[414],"False",[416],"True",{"id":418,"data":419,"type":25,"maxContentLevel":36,"version":36,"reviews":423},"9504aa21-8d71-4450-a971-7afb4faf56a3",{"type":25,"title":420,"contentRole":28,"markdownContent":421,"audioMediaId":422},"Long-lasting effects of economic crises","Carefully planned, thoughtful policy responses are often enough to put the brakes on financial crises. With the right people calling the shots and some luck, economies rebound from disasters, even in the direst situations. But though economies appear resilient, long-lasting effects may remain.\n\nIn theory, poor countries recover from a global crisis faster because each extra level of investment generates a higher level of output compared to more developed countries. Historically, this has not been the case. They are likely to hit another snag, negating any advances they make in the short term.\n\n**Economic crises also highlight and magnify inequalities between the rich and the poor**, and show how vulnerable the middle class is. With unemployment and inflation imposing a heavy burden on families, certain pockets of the population may suffer from mental health problems. Alcohol consumption and suicide stemming from economic hardship, in particular, pose significant challenges. Studies also find that economic uncertainty causes women to postpone childbearing, ultimately reducing fertility rates.\n\n![Graph](image://9aea4283-a82e-4e01-bf0e-3e87b411e78a \"Man drinking from a paper bag in the street. Image: U. A. Saarinen, CC BY 4.0 \u003Chttps://creativecommons.org/licenses/by/4.0>, via Wikimedia Commons\")","37d789c3-1208-44c6-add0-a9638e03f752",[424,433],{"id":425,"data":426,"type":59,"version":25,"maxContentLevel":36},"1e14d64a-4f8b-45a7-a80a-a0414f8f9885",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":427,"binaryCorrect":429,"binaryIncorrect":431},[428],"In theory, poor countries should recover from a global crisis faster. But historically, has this been the case?",[430],"No",[432],"Yes",{"id":434,"data":435,"type":59,"version":25,"maxContentLevel":36},"40e0fe41-01cf-4ffb-8b70-4b458ec5e85a",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":436,"clozeWords":438},[437],"Economic problems lead to increased mental health problems, alcohol consumption and suicide.",[439,440],"mental","alcohol",{"id":442,"data":443,"type":29,"maxContentLevel":36,"version":28,"orbs":446},"7a817f26-2621-4248-af13-7589279b12a9",{"type":29,"title":444,"tagline":445},"Wealth: Why and How?","How do we measure a country’s economic success? Let’s walk through a common yardstick: the gross domestic product.",[447,565],{"id":448,"data":449,"type":28,"version":28,"maxContentLevel":36,"pages":451},"6bcc1449-61ae-42c4-8489-0dfde465ddc0",{"type":28,"title":450},"Rabbits and Turtles: Economic Miracles and Disasters",[452,470,502,518,540],{"id":453,"data":454,"type":25,"maxContentLevel":36,"version":28,"reviews":458},"4420e2cc-cbd0-4ca2-8bd6-361efb3e0b09",{"type":25,"title":455,"contentRole":28,"markdownContent":456,"audioMediaId":457},"Rabbits and turtles, miracles and disasters","Across the world, some countries are thriving. Despite sensationalist news headlines, the US economy has been growing steadily. It had enjoyed the distinction of being the world’s richest nation in terms of total economic output for decades before China dethroned it in 2022.\n\nEconomists consider South Korea an economic miracle. From an agriculture-based economy, in 2021, it became the world’s 10th largest economy, exporting machinery and electronics, and even cultural content.\n\nMeanwhile, although Japan ranks as the world’s third largest economy, it has mostly stagnated since the 1990s, only seeing small spurts of growth in the 2000s. By 2019, its economy had shrunk back to its size in 2008, and the country continues to face an aging population.\n\n![Graph](image://cb935fa9-56cd-4fd9-ba10-171eda5b7d36 \"Graph showcasing Japans aging problem between 1990-2008, comparison with the US. Image: Victoriali2, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nBut when we compare truly poor countries to larger economies, the disparity is jarring. Many African countries like Liberia, Burundi, and the Central African Republic have lagged while the rest of the world has moved on. In a time when prosperous nations have seen self-driving cars, smartphones, and universal healthcare, it’s worth pondering why some countries struggle to provide citizens with basic goods and services.","71b37c2b-d2a0-4429-850e-04e8154e22e9",[459],{"id":460,"data":461,"type":59,"version":25,"maxContentLevel":36},"9feed3c7-251c-4133-94ab-cb42f7dc91ed",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":462,"multiChoiceCorrect":464,"multiChoiceIncorrect":466},[463],"What is the world's richest nation in terms of total economic output today?",[465],"China",[467,468,469],"The United States","Russia","India",{"id":471,"data":472,"type":25,"maxContentLevel":36,"version":28,"reviews":476},"45bf95a6-15a9-40e2-bb2b-ee7216ac980f",{"type":25,"title":473,"contentRole":28,"markdownContent":474,"audioMediaId":475},"Measuring a Country's Economic Performance","How do we know when a country’s economy is doing well? A crucial indicator economists look at is a nation’s **GDP or gross domestic product**. **GDP refers to the total dollar value of all final goods and services produced within a country in a year.**\n\n![Graph](image://1129ed31-ea45-44f3-b4fe-cf6679d4c62e \"Batch of individual cakes. Image: Øyvind Holmstad, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nGDP only considers final goods. If a country produces $1 million worth of eggs that were in turn used to bake $25 million worth of cake, only the latter is added to its GDP. The eggs don’t count. They were an intermediate good, a product used as an ingredient to another finished good. Other examples include nuts and bolts used in manufacturing shelving racks, or wheat used to produce bread.\n\nIntermediate goods differ from capital goods, which also help create other finished goods and services, but are merely used to help in production rather than serving as an ingredient or material. This includes things like equipment used in a factory, or tractors used for farming.\n\n![Graph](image://a303bfa1-b40d-415e-a92e-323d7492358e \"Tractors in a parking lot. Image: Alan Fryer / Taith Tractors Madryn Tractor Run\")","c65c9d56-fe9e-42c0-a8a1-1f8ca220950d",[477,484,491],{"id":478,"data":479,"type":59,"version":25,"maxContentLevel":36},"066bf56c-0e34-4b01-aee9-dc0f9e8bec29",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":480,"activeRecallAnswers":482},[481],"The GDP is equal to the annual...",[483],"total dollar value of all final goods and services produced by a country",{"id":485,"data":486,"type":59,"version":25,"maxContentLevel":36},"1be2ab4d-8785-45ae-ae06-b8eb13002903",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":487,"clozeWords":489},[488],"GDP stands for Gross Domestic Product",[490],"Gross Domestic Product",{"id":492,"data":493,"type":59,"version":25,"maxContentLevel":36},"29c7213b-24fd-41ed-9a3a-cf0be6ff1f0f",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":494,"multiChoiceCorrect":496,"multiChoiceIncorrect":498},[495],"Which of these does GDP include?",[497],"Just final goods",[499,500,501],"Just intermediate goods","Just capital goods","All goods",{"id":503,"data":504,"type":25,"maxContentLevel":36,"version":28,"reviews":508},"a04d86b7-1ff1-46c6-9469-01bd7b608118",{"type":25,"title":505,"contentRole":28,"markdownContent":506,"audioMediaId":507},"More GDP considerations","Remember that GDP only looks at goods produced within the country. If a Japanese company has a manufacturing facility in China and that facility produces $3 billion worth of goods, that amount is added to China’s GDP, not Japan’s. Who owns the company doesn't matter so much as where the goods are produced, at least from a GDP standpoint.\n\n![Graph](image://2407e5fa-970a-45d1-be6b-312bd1ea9843 \"House being constructed. Image: House being built, Echo Street, Roberttown, Liversedge by habiloid, CC BY-SA 2.0 \u003Chttps://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons\")\n\nFinally, **this year’s GDP only accounts for goods produced this year**. If a house was constructed last year but was only sold this year, it counts in last year’s GDP, not this year’s. What about a house built 5 years ago, sold that same year, and then resold this year? The value of the house was only added to the GDP 5 years ago, when it was produced. The resale of old products doesn't count in GDP because GDP is supposed to be a measure of output or production. Reselling used goods doesn't involve any new output, so it is irrelevant in terms of GDP.","75d4691a-5065-49c3-9728-5399dbdbb7c2",[509],{"id":510,"data":511,"type":59,"version":25,"maxContentLevel":36},"c128a216-f59c-4e87-a689-57a73b2fdfa9",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":512,"binaryCorrect":514,"binaryIncorrect":516},[513],"The calculation of GDP relies on",[515],"where a good is produced",[517],"who owns the company producing the good",{"id":519,"data":520,"type":25,"maxContentLevel":36,"version":28,"reviews":524},"a1bed0fb-22a4-47a4-abe3-fd354c042655",{"type":25,"title":521,"contentRole":28,"markdownContent":522,"audioMediaId":523},"What does GDP not tell us?","**The GDP as an economic indicator has limitations**. As its creator, Simon Kuznets, once said, \"The welfare of a nation can scarcely be inferred from a measure of national income.” By reducing a complex world into a single number, we leave nuance behind.\n\nWhen someone leaves the workforce to care for their newborn, the work they pour into childrearing does not figure into a nation’s GDP. Yet, it is every bit as important in building a healthy country. Or take someone who does their own carpentry instead of buying furniture from a store. GDP doesn’t care for his labor, even if he produces something of value.\n\n![Graph](image://4c369a58-a54a-4bdd-b7e1-2036a0a4d6da \"Carpenter making furniture. Image: Monica Ferreira Ask, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nKeep in mind also that **GDP represents quantity but not quality.** A nation whose GDP skyrockets at the expense of its rainforests and natural resources may not necessarily be better off in the long term. Or there could be a country with a growing GDP, but its poor still struggle to feed themselves while the rich get richer. We are unable to appreciate such detail by focusing on GDP alone.","05664fec-a710-4d2d-8688-ff7f81bf11cb",[525,532],{"id":526,"data":527,"type":59,"version":25,"maxContentLevel":36},"0f4b18d7-023c-45e8-a5ad-97727c29981b",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":528,"binaryCorrect":530,"binaryIncorrect":531},[529],"True or False: A woman facing childbirth figures in a nation's GDP calculation",[414],[416],{"id":533,"data":534,"type":59,"version":25,"maxContentLevel":36},"c1326d79-c284-4d2a-be0c-11e18c8598e4",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":535,"clozeWords":537},[536],"GDP focuses on quantity of goods produced, not quality of their effects",[538,539],"quantity","quality",{"id":541,"data":542,"type":25,"maxContentLevel":36,"version":25,"reviews":546},"721f9454-7027-4e74-8621-4c119726be4f",{"type":25,"title":543,"contentRole":28,"markdownContent":544,"audioMediaId":545},"Comparing GDP across countries","In 2019, the Philippines’ GDP was $361.5 billion. What does that tell you? Not much. If I add that Indonesia’s GDP was $1.06 trillion, Japan $5.06 trillion, and China a whopping $14.72 trillion, you would say the Philippines is nowhere near as rich as its neighbors. \n\nBut hold on. China has an extremely large population. Naturally, it must produce more goods and services to sustain its populace. While we can say that China’s economy is 40.72 times larger than the Philippines’, does it follow that an average Chinese citizen is 40.72 times richer than the average Filipino? A nuanced comparison must account for both countries’ population sizes. \n\nEnter **GDP per capita, which divides GDP by a country’s population**. This metric provides a clearer picture of a nation’s standards of living, especially in comparison to other countries. China’s 2019 GDP per capita was $10,435 – still larger than the Philippines’ $3,299. However, adjusting for Indonesia’s large population, its $3,870 GDP per capita means the average Indonesian is only slightly richer than the average Filipino, even though Indonesia’s GDP appears much larger.\n\n ![Graph](image://a276f411-488b-48e3-ba2e-f937c82d4243 \"GDP Comparisons Across Countries\")\n\n","b5531f55-b866-405f-8cb0-811315fa1073",[547,558],{"id":548,"data":549,"type":59,"version":25,"maxContentLevel":36},"37a970b0-b8a6-4b91-921d-b727b2c9f5e7",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":550,"multiChoiceCorrect":552,"multiChoiceIncorrect":554},[551],"To contextualize GDP, we divide it by...",[553],"the number of people in a country",[555,556,557],"the land mass of a country","the number of businesses in a country","the average (mean) income of a country",{"id":559,"data":560,"type":59,"version":25,"maxContentLevel":36},"b1743f99-6d2c-46db-a2f6-b1edb36db72b",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":561,"clozeWords":563},[562],"When we divide the Gross Domestic Product by the number of people in a country, we call it GDP per capita",[564],"per capita",{"id":566,"data":567,"type":28,"version":28,"maxContentLevel":36,"pages":569},"65fbf251-5018-41fe-a315-1495b7f5327c",{"type":28,"title":568},"Understanding GDP: The Basics and Beyond",[570,601,616],{"id":571,"data":572,"type":25,"maxContentLevel":36,"version":28,"reviews":576},"728e4850-dd24-41e6-b0c6-88487133b18b",{"type":25,"title":573,"contentRole":28,"markdownContent":574,"audioMediaId":575},"Another GDP loophole – rising prices","By definition, GDP is tied to the market value of goods. When prices increase, GDP likewise grows. You can grow the same number of pineapples for 2 years, and GDP would grow if pineapples cost $2 more apiece the second year. On paper, you produced more, but that’s just **nominal growth**.\n\nWhat we want to see is **real growth**. If we compute for GDP using the same prices as last year, we want it to still reflect a net increase. That means we grew more pineapples this year. Alternatively, we can grow the same number of pineapples but improve their quality. Sweeter, more nutrient-dense pineapples will net a higher price, which would reflect real, not nominal, growth.\n\n![Graph](image://284837a2-540a-492d-919b-9e1a601d2fbd \"Buckets of pineapples. Image: Forest and Kim Starr, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\nReal GDP is calculated by adjusting nominal GDP for inflation using a price index such as the GDP deflator.\n\nWhy is real GDP an important measure? The figure below shows US GDP, both real and nominal. Notice how GDP seems to have grown 69 times from 1950 to 2020. In fact, output has only really grown sevenfold. **Using real GDP gives us a more accurate picture of how a country’s output levels grow over time**.\n\n![Graph](image://80790e04-39d2-4090-a59c-8bd7a13c06a0 \"GDP Comparisons\")","6aaf84b7-f59d-4dd4-8c4d-2d6e938cc580",[577,586,593],{"id":578,"data":579,"type":59,"version":25,"maxContentLevel":36},"49b54744-cb1d-495c-a264-ab1e33e33f75",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":580,"binaryCorrect":582,"binaryIncorrect":584},[581],"When prices increase, what do we get?",[583],"nominal growth",[585],"real growth",{"id":587,"data":588,"type":59,"version":25,"maxContentLevel":36},"53b0017d-d24e-47ff-83b5-a8fb07326119",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":589,"activeRecallAnswers":591},[590],"What type of growth in GDP reflects price increases?",[592],"Nominal growth",{"id":594,"data":595,"type":59,"version":25,"maxContentLevel":36},"aaf0906c-ebb0-45e5-9d0e-13495086e0e4",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":596,"clozeWords":598},[597],"To measure an economy accurately, we should weight real growth over nominal growth ",[599,600],"real","nominal",{"id":602,"data":603,"type":25,"maxContentLevel":36,"version":25,"reviews":607},"9cb71521-630e-4b7c-b868-f66b3681d133",{"type":25,"title":604,"contentRole":28,"markdownContent":605,"audioMediaId":606},"Circling Back to the Roots of Economics","Why is GDP important? Why do we care about measuring countries’ production? To answer this, we look at the Greek word oikonomia, which roughly translates to ‘household management.’ At its heart, modern economics is like a household with a dilemma – unlimited wants and needs coupled with limited resources. Which desires deserve priority? How can resources be maximized to fulfill as many wants and desires as possible?\n\nA 2-person household has any number of desires – a dream vacation, a new car, early retirement – on top of basic needs like food, water, and shelter. It uses its resources of time, labor, and expertise by seeking employment, thus converting resources into output (income) that pays for their needs. How well their needs are met depends on how efficiently the household solves this puzzle, or how much income it produces.\n\nLikewise, countries maximize the utility of their resources to meet the needs of their constituents. Thus, **GDP is a useful metric because a country needs income in order to provide healthcare, education, and infrastructure**. When national income falls short, citizens’ needs aren't met.\n","682db606-7e2b-451d-a409-25e01ad1948c",[608],{"id":609,"data":610,"type":59,"version":25,"maxContentLevel":36},"0af914c7-bd7e-4bd2-8fec-2893e47c6d33",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":611,"clozeWords":613},[612],"GDP is a useful metric because countries need resources to meet the needs of their constituents",[614,615],"resources","needs",{"id":617,"data":618,"type":25,"maxContentLevel":36,"version":28,"reviews":622},"f20c3ecf-78ee-4b8d-87b6-de191acd6e4c",{"type":25,"title":619,"contentRole":28,"markdownContent":620,"audioMediaId":621},"Scarcity, and why you can’t have your cake and eat it too","In economics, **the idea of limited resources paired with unlimited desires is summed up in the concept of scarcity**. This concept is arguably the most universal and relatable of all topics in the field. A person can have all the money in the world and yet still be constrained by time. We are all affected by scarcity, be it in the form of food, money, time, or knowledge.\n\n**Hand in hand with scarcity is the idea of tradeoffs**. Every decision we make impacts our opportunity to pursue another choice. Many individuals have to balance pursuing a career with focusing on parenthood. They can choose to pursue one before the other, or to juggle both at the same time, but, in doing so, they might risk giving up something else – time for themselves, proper rest, or health.\n\n![Graph](image://29942f53-e2f2-48b0-b4d0-85d6cda71c34 \"Woman attending a seminar with her baby. Image: Wilson Dias/ABr, CC BY 3.0 BR \u003Chttps://creativecommons.org/licenses/by/3.0/br/deed.en>, via Wikimedia Commons\")\n\nA household’s spending is limited by their disposable income. If they want to purchase something off-budget, they have to cut back spending elsewhere. Sure, they can pay for big purchases on credit, but that’s just delaying the tradeoff. They’ll still have to find the funds elsewhere at some point.","de168c74-8704-427d-8121-5ac5431ca4cb",[623,634],{"id":624,"data":625,"type":59,"version":25,"maxContentLevel":36},"8e33640a-cf72-4e92-8131-3a04dbb42dfc",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":626,"multiChoiceCorrect":628,"multiChoiceIncorrect":630},[627],"In economics, what do we call the concept of limited resources being paired with unlimited desires?",[629],"scarcity",[631,632,633],"inflation","recession","tough luck",{"id":635,"data":636,"type":59,"version":25,"maxContentLevel":36},"c2fc1ff8-9a1b-4482-ace3-73b21b9d49bc",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":637,"clozeWords":639},[638],"We can have scarcity in food, money, time, or knowledge",[640,641],"food","time",{"id":643,"data":644,"type":29,"maxContentLevel":36,"version":28,"orbs":647},"d10a5cf9-f90d-4c9d-ba20-4654507f1af5",{"type":29,"title":645,"tagline":646},"Alarm Bells of the Economy","Why are uncontrolled inflation and unemployment such menaces? This tile provides a brief guide.",[648,709,858],{"id":649,"data":650,"type":28,"version":28,"maxContentLevel":36,"pages":652},"317d7913-eb24-485d-bb6e-ec9591d53393",{"type":28,"title":651},"Understanding Economic Complexity",[653,669,687],{"id":654,"data":655,"type":25,"maxContentLevel":36,"version":28,"reviews":659},"7801ad1d-7e3a-46a5-9344-4b613d35c936",{"type":25,"title":656,"contentRole":28,"markdownContent":657,"audioMediaId":658},"An impossible puzzle","The ‘economy’ is not a single concrete thing that we can point to. **It is merely a concept we use to understand the way markets work**. Economics as a field of study reduces the workings of an economy into a fairly straightforward set of rules. Theories paint a picture of the economy as an obedient creature easily manipulated by its puppet master, but it is actually a complex beast that detests being told what to do.\n\nPerhaps the economy is more comparable to a Rubik’s Cube. You fiddle with it to solve one side of the puzzle, but in doing so, you mess up the other 5 sides of the cube. However, a Rubik’s Cube is easier to master, whereas an economy is close to impossible.\n\n![Graph](image://eca75a8b-6acf-4f4b-8c73-9da06a5bffe4 \"Person playing with a Rubiks Cube. Image: Biswarup Ganguly, CC BY 3.0 \u003Chttps://creativecommons.org/licenses/by/3.0>, via Wikimedia Commons\")\n\nSo, why bother learning macroeconomics? Because we don’t live in a vacuum, and many of the indicators that economists track affect us on a personal level. Moreover, some metrics serve as early warning signs that help us prepare for future trouble, but they're only helpful insofar as we understand and detect them.","bf98d8e0-ab8a-4df0-9d0a-282377473fcf",[660],{"id":661,"data":662,"type":59,"version":25,"maxContentLevel":36},"953fbb16-d85e-4c78-a38d-270e86999c00",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":663,"binaryCorrect":665,"binaryIncorrect":667},[664],"Our understanding of economics is...",[666],"based on theories and models",[668],"perfect and complete",{"id":670,"data":671,"type":25,"maxContentLevel":36,"version":28,"reviews":675},"63d052d0-cf48-4ac4-a1ea-66cd5c2207c2",{"type":25,"title":672,"contentRole":28,"markdownContent":673,"audioMediaId":674},"The invisible money-eating monster","Have you ever been told not to keep your savings tucked under your mattress? And do you understand why? Sure, house burglars are a valid reason, but it's not just that. Even multibillionaires with state-of-the-art security are vulnerable to a proverbial thief that need not get close to their cash.\n\nTypically, **money that sits idly or unproductively is constantly shrinking**. The culprit behind this phenomenon is inflation, where the general level of prices increases steadily. You’ll have noticed this happening if you're an observant grocery shopper. The contents of your grocery cart might not change, but the amount you pay at the register might grow little by little, year after year.\n\n![Graph](image://0aca7be3-bb41-4203-ac8a-f395c8137110 \"Woman packing groceries in a supermarket. Image: A00232386, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nSo, even though the $100 bill you stashed away at a safe corner at home remains intact, that money might afford you one less tray of eggs this year compared to last. Inflation has shrunk the buying power of your money. This is why we’re taught to invest spare cash in income-generating assets, to offset the effects of inflation eating away at our hard-earned money.","ca7da59c-4d5c-41b7-b985-4a78296993a1",[676],{"id":677,"data":678,"type":59,"version":25,"maxContentLevel":36},"81b5ea4d-e44b-4d9f-a6c2-ffd3c6f6663c",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":679,"multiChoiceCorrect":681,"multiChoiceIncorrect":683},[680],"Idle money that has not been invested is...",[682],"shrinking",[684,685,686],"growing","oscillating","awaiting tooth fairy collection",{"id":688,"data":689,"type":25,"maxContentLevel":36,"version":28,"reviews":693},"aa9fe6af-14c0-4ff1-9143-2f2de6940e7e",{"type":25,"title":690,"contentRole":28,"markdownContent":691,"audioMediaId":692},"What causes inflation?","Consumers find inflation bothersome. **Governments fear uncontrolled inflation**. Most governments, however, aim for a small, steady rate of inflation – 2% in the US – because economists generally believe it helps the economy grow. So why does inflation occur in the first place? It happens when there is too much money chasing too few goods.\n\nThe supply of money within an economy is something that government officials monitor closely. The government controls money supply, printing more cash or restricting money flow as it sees fit. Too little money, and you’ll have people tightening their belts. Fearing they’ll run out of funds, people delay spending. Without customers, firms lay off employees to cut costs and keep losses at a minimum. What's worse, businesses may have to shut down.\n\n![Graph](image://713a3f62-7522-4a35-a01c-01bd7cfbeae8 \"Employees carry their personal belongings out of the office. Image: TheeErin, CC BY-SA 2.0 \u003Chttps://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons\")\n\nConversely, too much money circulating means that people have more cash to spend. If production doesn't keep up, demand will outpace supply. Businesses will run out of inventory unless they can ramp up production. But, to produce beyond capacity, businesses might hire more workers or require employees to work overtime. Either entails additional costs, which firms pass on to consumers by raising prices. Thus, inflation occurs.","2d35431b-f3b3-4e88-b049-605f5a79b41a",[694,702],{"id":695,"data":696,"type":59,"version":25,"maxContentLevel":36},"2e410d87-838a-486f-a3f4-3e0685e98c2b",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":697,"clozeWords":699},[698],"Inflation is the phenomenon of prices rising because there is too much money in circulation",[700,701],"Inflation","money",{"id":703,"data":704,"type":59,"version":25,"maxContentLevel":36},"a0b7981b-850e-41f9-84b2-ae217c6db2f9",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":705,"activeRecallAnswers":707},[706],"What is the aimed percentage of inflation in the US?",[708],"2%",{"id":710,"data":711,"type":28,"version":28,"maxContentLevel":36,"pages":713},"8c5d6fe8-b6b8-4b98-b6f8-74e7d7497190",{"type":28,"title":712},"Inflation Dynamics",[714,734,760,784,809,832],{"id":715,"data":716,"type":25,"maxContentLevel":36,"version":28,"reviews":720},"1a841197-6391-4aa9-9fd0-1b96d749fa76",{"type":25,"title":717,"contentRole":28,"markdownContent":718,"audioMediaId":719},"Shocks, a pandemic!","**Unusually high inflation occurs because of shocks in the system that rapidly increase the demand for goods and services**, such as a sudden increase in money supply. But shocks aren't always the government’s fault. A pandemic, for example, can cause seismic disruptions in the system.\n\nRecall when, not too long ago, the world went nuts for toilet paper. At the onset of COVID-19 lockdowns in 2020, uncertainty triggered irrational behavior. Some folks decided to stockpile toilet paper, causing others to panic at the thought of a shortage. Panic breeds further panic, setting off waves of fear.\n\n![Graph](image://e8cca5e7-efea-47b6-9645-885d7194cf81 \"Cupboard stockpiled with toilet paper. Image: Mwinog2777, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nToilet paper won the popularity contest, but the public also hoarded canned goods and hand sanitizer. This led to what we saw in March 2020 – supermarkets with remarkably empty racks, grown women fighting over toilet paper. If you're wondering, the answer is yes, toilet paper prices rose, at least in 57% of the world. That said, the initial shock that led to intense shopping sprees was short-lived. Layoffs and uncertainty replaced panic, simmering down the public and staving off inflation.","c2b423a7-9419-43cf-aae2-8202073273ea",[721,727],{"id":722,"data":723,"type":59,"version":25,"maxContentLevel":36},"4da80837-d7ec-4a59-a59e-61f363d05255",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":724,"clozeWords":726},[725],"Although the COVID-19 pandemic initially led to increased inflation, subsequent layoffs and uncertainty decreased it back to manageable levels",[210,208],{"id":728,"data":729,"type":59,"version":25,"maxContentLevel":36},"8c37c6d5-fe49-4b33-881c-912831fc2f00",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":730,"activeRecallAnswers":732},[731],"What is the impact of shocks in the system that rapidly increase demand?",[733],"Unusually high inflation",{"id":735,"data":736,"type":25,"maxContentLevel":36,"version":28,"reviews":740},"3ad97e65-a0bc-412e-8992-de6b71ead73b",{"type":25,"title":737,"contentRole":28,"markdownContent":738,"audioMediaId":739},"The supply side contributes to inflation, too","In a free market, the interplay between demand and supply drives prices. So, naturally, supply-side factors contribute to inflation too. At the height of the COVID-19 pandemic, infected workers had to stay home, leading to staff shortages. Aging workers didn't want to risk their lives, and overworked-but-underpaid employees found themselves at their breaking point. This led to the Great Resignation, which made waves across the US, Australia, China, and Europe. Businesses buckled under the weight of a leaner workforce. Global production dropped by 3.6% in 2020 due to a sharp decline in productivity.\n\n![Graph](image://f9034ebd-6272-45b9-91fb-e11faca36ca5 \"Busy shipping port. Image: chuttersnap chuttersnap, CC0, via Wikimedia Commons\")\n\nBesides labor woes, COVID-19 restrictions sent the global supply chain into disarray. Quarantines and other safety precautions caused logistical nightmares. US and Chinese ports saw massive backlogs, with shipping containers stranded and unable to transport much-needed goods across the globe. Materials for production grew in cost, so businesses found themselves raising prices for finished goods too. These **2 supply-side factors – labor shortages and the global supply chain fiasco** – are 2 reasons behind the rising inflation rates in 2022.","d83f9c03-9a3f-406e-a109-35977de06b2c",[741,752],{"id":742,"data":743,"type":59,"version":25,"maxContentLevel":36},"04001cd5-e597-4d89-a1a3-74b638f7997f",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":744,"multiChoiceCorrect":746,"multiChoiceIncorrect":748},[745],"What happened to global production in 2020 due to the COVID-19 pandemic?",[747],"Decreased by 3.6%",[749,750,751],"Increased by 3.6%","Decreased by 7.2%","Increased by 7.2%",{"id":753,"data":754,"type":59,"version":25,"maxContentLevel":36},"82895d1d-7a61-4f6b-a63a-8073822be98f",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":755,"clozeWords":757},[756],"The two supply-side factors which led to a rise in inflation in 2022 are labor shortages and problems with the global supply chain",[758,759],"labor","supply chain",{"id":761,"data":762,"type":25,"maxContentLevel":36,"version":28,"reviews":766},"0f596e7e-68f0-4604-96fa-26a29dab6c93",{"type":25,"title":763,"contentRole":28,"markdownContent":764,"audioMediaId":765},"Tracking prices with a market basket ","Who decides the rate of inflation? No one, really, because it's driven by market forces. Instead, inflation is monitored and measured. In the United States, the Bureau of Labor Statistics (BLS) is responsible for this.\n\nThere are many ways to measure inflation, but the most popular metric is the **Consumer Price Index** (CPI). The **CPI is a metaphoric basket of goods and services representing an average household’s spending**. It contains thousands of items, including clothing, gasoline, housing repairs, and medicine. Authorities track the movement in prices for goods and services in each basket, compute for a total, and compare this to a base year.\n\nThe graph below shows the CPI for the US from 1947 to 2021. It has 1984 as its baseline year, which means that it has an index of 100. In comparison, the CPI for 2000 is 172.192. What cost households $100 in 1982-1984 required $172.192 to purchase in 2000. We can also see that the CPI for 1950 is 24.063. This means that goods and services cost 6.16 times more in 2000 compared to 1950 – or a 516% increase.\n\n![Graph](image://2bad57a3-2e65-4a9b-a2ea-42e64b575320 \"Line Graph Plotting the Consumer Price Index\")","24ebfcf7-983f-4622-bfc2-0fc9d4e9d1c7",[767,776],{"id":768,"data":769,"type":59,"version":25,"maxContentLevel":36},"2b42f11c-14f2-4e52-8a08-4a677e956d37",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":770,"clozeWords":772},[771],"The CPI is a metaphoric basket of goods and services representing an average household's spending",[773,774,775],"goods","services","average household's spending",{"id":777,"data":778,"type":59,"version":25,"maxContentLevel":36},"30c9d0c3-2bff-4b4e-925b-c2d12f9694dc",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":779,"binaryCorrect":781,"binaryIncorrect":783},[780],"What is the most popular way of measuring inflation?",[782],"The Consumer Price Index (CPI)",[142],{"id":785,"data":786,"type":25,"maxContentLevel":36,"version":28,"reviews":790},"893060f9-0103-4a88-83bf-1f8fe0224882",{"type":25,"title":787,"contentRole":28,"markdownContent":788,"audioMediaId":789},"Assigning a number to price changes","**Indexes like the CPI are an easy way to compare prices across decades**, but, for a quick comparison between 2 time points, referring to inflation rate is more convenient. Inflation rate is simply the percent change between 2 CPIs. If the CPI for 2000 is 172.192 and 2001’s is 177.042, we can say that the inflation rate for 2001 is 2.817%.\n\nA graph that shows inflation rates, like the one below, provides a more intuitive look into how prices change over time. We can see that price levels in the US have mostly seen a steady increase. Sometimes, inflation can be drastic, as in 1980, when the inflation rate was pegged at 13.50%.\n\nBut **there are also rare moments when inflation is negative – deflation**. We see this in 1949, 1955, and 2009. Deflation occurs when the economy slows down significantly – what we call a recession. A recession is when there are 2 consecutive periods where an economy has shrunk. In times like these, price levels drop. This might seem preferable for consumers – who doesn't want cheaper goods? – but it is nothing to celebrate about, as it signifies a weakening economy.\n\n![Graph](image://6170c0fc-d268-4bcb-8adf-10f698566932 \"Change in CPI Graph\")","18864e7b-d0e6-40fa-9f7a-caad1029500f",[791,802],{"id":792,"data":793,"type":59,"version":25,"maxContentLevel":36},"5a626aca-fed1-4803-8e79-8f375bc1f1dd",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":794,"multiChoiceCorrect":796,"multiChoiceIncorrect":798},[795],"When inflation is negative, what do we call it?",[797],"Deflation",[799,800,801],"Stagnation","Stagflation","Depression",{"id":803,"data":804,"type":59,"version":25,"maxContentLevel":36},"60c1865b-d88d-43ae-ae96-77a2d4c43914",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":805,"clozeWords":807},[806],"A recession is when there are two consecutive periods when an economy has shrunk.",[632,808],"two consecutive periods",{"id":810,"data":811,"type":25,"maxContentLevel":36,"version":28,"reviews":815},"29fd10a6-ee7c-46df-a8ce-0e8314fa513f",{"type":25,"title":812,"contentRole":28,"markdownContent":813,"audioMediaId":814},"What? Me? Worry (about inflation)?","“Congratulations!” your boss says during your year-end performance review, “I’m awarding you a 5% raise.” Should you celebrate? Well, what's this year’s inflation rate? If it’s exactly 5%, the increase is just enough to offset the higher cost of living. If inflation exceeds 5%, then your real wage is actually decreasing because inflation means your salary can now buy less.\n\n**An upward trend in average nominal wages doesn't necessarily mean that workers are better off**. If their real wages lag behind inflation, they’ll end up saving less than before, if at all.\n\nLife savings also crumble under inflation. Parking your savings in a bank account providing 0.03% interest is like leaving your money to the wolves. That's why financial advisors recommend investing in income-generating assets.\n\n![Graph](image://f210acaa-af68-4757-90b6-deab6f925606 \"Laptop showing stock investments. Image: Negative Space, see page for license, via Wikimedia Commons\")\n\nFinally, imagine a world where prices double daily – hyperinflation. Money loses value so quickly that people have no incentive to save. You’d want to spend whatever money you receive straight away, before prices increase again, weekly grocery run be damned. Under such circumstances, no investment can give large enough returns to offset hyperinflation.","367d9ae5-5a52-47fe-8ffa-94274267a49e",[816,823],{"id":817,"data":818,"type":59,"version":25,"maxContentLevel":36},"1af98726-d414-4a0a-9b56-d20395c5d585",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":819,"binaryCorrect":821,"binaryIncorrect":822},[820],"Do investments typically give enough returns to offset the effects of hyperinflation?",[430],[432],{"id":824,"data":825,"type":59,"version":25,"maxContentLevel":36},"22cf0906-c358-43a9-a23f-cd78e4041cab",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":826,"binaryCorrect":828,"binaryIncorrect":830},[827],"What type of wage needs to increase for a worker to be better off?",[829],"Real Wages",[831],"Nominal Wages",{"id":833,"data":834,"type":25,"maxContentLevel":36,"version":28,"reviews":838},"9dcba353-140f-4cdb-800c-189c536c963e",{"type":25,"title":835,"contentRole":28,"markdownContent":836,"audioMediaId":837},"A disruption to the ecosystem","**Price is a signal of scarcity or value**. When pork prices increase, we assume it's because there’s less pork in the market, perhaps due to swine flu. But when market prices are volatile, price confusion follows. Should a restaurant focus on chicken, raise prices for pork dishes, or raise prices for all menu items? There’s no clear answer until the market stabilizes.\n\n![Graph](image://c04b33df-7b3a-4edd-ab9a-ef6ef34e36de \"Pork in a supermarket. Image: DAENG Shengmoa Houbeiw, CC0, via Wikimedia Commons\")\n\n**Inflation also hurts money lenders**. When banks lend money, they expect a certain rate of return after considering inflation. Take a 10% interest rate on a one-year $1,000 loan. 3% might cover their expected inflation, and 7% is their real interest rate. If inflation suddenly registers at 8%, $80 of the $100 interest payment is consumed by inflation. The bank earns 2%, well below target. Inflation benefits the borrower but hurts the lender.\n\nWhat if banks expect inflation to skyrocket? They’ll increase nominal interest rates accordingly. But when inflation is high and volatile, banks might just cease lending activities to minimize risk. When this happens, borrowers lose access to loans, which hampers investment and spending.","87729b1c-5237-4b09-a42f-d284a1899fec",[839,847],{"id":840,"data":841,"type":59,"version":25,"maxContentLevel":36},"5303fbbf-f0f1-48dc-9c43-c398fef3f3bd",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":842,"activeRecallAnswers":844},[843],"What two things does price signify?",[845,846],"Scarcity","Value",{"id":848,"data":849,"type":59,"version":25,"maxContentLevel":36},"709a8ecb-9f1d-47b8-9c75-be0723501705",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":850,"multiChoiceCorrect":852,"multiChoiceIncorrect":854},[851],"Who does inflation hurt?",[853],"Money lenders",[855,856,857],"The World Trade Organization","People with large debts","Cryptocurrencies",{"id":859,"data":860,"type":28,"version":28,"maxContentLevel":36,"pages":862},"373d5423-402b-476b-a757-01cb895545c3",{"type":28,"title":861},"Unemployment and Economic Health",[863,887],{"id":864,"data":865,"type":25,"maxContentLevel":36,"version":25,"reviews":869},"21cd17df-606c-4c97-b65c-803ef7dd1d08",{"type":25,"title":866,"contentRole":28,"markdownContent":867,"audioMediaId":868},"Joblessness ≠ unemployed","What happens when an economy is struggling? People worry about losing their jobs. During the COVID-19 pandemic, businesses anticipated a downswing due to lockdown restrictions. With production grinding to a halt, firms had to trim excess fat by laying off employees.\n\nThe third and final indicator of a country’s economic health is **its unemployment rate**. The government keeps track of this statistic because able-bodied people struggling to find work signals that the economy is not being efficient – it's producing below its potential. \n\nWhat does it mean to be unemployed from an economist’s perspective? The moment you graduate from high school or university and start applying for work, you are considered unemployed. If, after some time, you still haven't received any viable job offers and you decide to take a few months’ break from job hunting, you have become a discouraged worker. Discouraged workers are not included in the unemployment rate, and neither are parts of the population who are unable or unwilling to hold a job – underaged people, full-time students, retirees, stay-at-home parents, and institutionalized people.\n","cca4712e-20db-435d-80e2-e79785d0071e",[870,881],{"id":871,"data":872,"type":59,"version":25,"maxContentLevel":36},"8531ef27-8af5-4041-bed9-dc136c2a79e6",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":873,"multiChoiceCorrect":875,"multiChoiceIncorrect":877},[874],"Which of these groups feature in unemployment figures?",[876],"Workers recently made redundant",[878,879,880],"Discouraged workers","Children","Retirees",{"id":882,"data":883,"type":59,"version":25,"maxContentLevel":36},"c7670973-2aca-4a72-82af-2c2246f8e865",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":884,"activeRecallAnswers":886},[885],"What is the technical term for workers who have decided to take a few months off from looking for work?",[878],{"id":888,"data":889,"type":25,"maxContentLevel":36,"version":28,"reviews":893},"b51e2666-3de8-4016-94a7-bcf340f1f510",{"type":25,"title":890,"contentRole":28,"markdownContent":891,"audioMediaId":892},"Living with unemployment","**Frictional unemployment happens when someone is in between jobs to seek better pay, to relocate, or for other personal reasons**. It's considered natural, as people move through different stages in life.\n\nMeanwhile, **structural unemployment occurs when the labor force’s skills do not match the market’s needs**. Say a manufacturing facility in a small town moves its operations overseas. Laid-off workers might struggle to find suitable jobs given their skill set. In particular, older people face more difficulty because of age discrimination. They’re also less likely to re-enter school and learn new skills.\n\nFinally, **cyclical unemployment happens when firms have fewer jobs than there are job applicants**. Economies go through boom-and-bust cycles, and, when it's at the bottom, firms fire workers to stay afloat.\n\n![Graph](image://a9ce3ee7-67eb-488e-88bf-4db2b1381da3 \"Unemployed workers queue outside job centre. Image: Ben Shahn, Public domain, via Wikimedia Commons\")\n\nIs unemployment always bad? It depends on the type. One could argue that frictional unemployment is good because it means workers are seeking greener pastures. Structural unemployment is acceptable to a certain extent because markets shift and industries evolve. However, governments try to eliminate cyclical unemployment because it can have severe impacts on workers’ lives.","340c826c-8172-47df-abc2-719872c2a7ee",[894,901,911,918],{"id":895,"data":896,"type":59,"version":25,"maxContentLevel":36},"147cead9-4da4-493e-bf9a-4d7338d6430c",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":897,"clozeWords":899},[898],"Cyclical unemployment happens when firms have fewer jobs than there are job applicants",[900],"Cyclical",{"id":902,"data":903,"type":59,"version":25,"maxContentLevel":36},"18d18f6c-4060-4546-b1f0-7fc5102e19e0",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":904,"multiChoiceCorrect":906,"multiChoiceIncorrect":907},[905],"What is widely considered to be the worst type of unemployment?",[900],[908,909,910],"Frictional","Structural","Situational",{"id":912,"data":913,"type":59,"version":25,"maxContentLevel":36},"fd6a0e69-9bc4-4c2d-9718-5cfbecda223e",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":914,"activeRecallAnswers":916},[915],"What is it called when the labor force's skills don't match market needs?",[917],"Structural unemployment",{"id":919,"data":920,"type":59,"version":25,"maxContentLevel":36},"ffd08b49-cb9a-42bb-afa0-66f1402177f8",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":921,"binaryCorrect":923,"binaryIncorrect":925},[922],"What is it called when someone is in between jobs to relocate?",[924],"Frictional unemployment",[926],"A discouraged worker",{"id":928,"data":929,"type":29,"maxContentLevel":36,"version":28,"orbs":932},"362fa18e-8006-4ec9-b067-d084547f5557",{"type":29,"title":930,"tagline":931},"Macroeconomics, Government, Money, and You","Meet the main characters of an economy, the roles they play, and their interactions with each other.",[933,1049],{"id":934,"data":935,"type":28,"version":28,"maxContentLevel":36,"pages":937},"74c75a8a-2688-4490-83c0-598d67f70155",{"type":28,"title":936},"The Structure of the Economy",[938,960,985,1026],{"id":939,"data":940,"type":25,"maxContentLevel":36,"version":25,"reviews":944},"4791a662-f63a-4b16-ba18-c2d5b175d387",{"type":25,"title":941,"contentRole":28,"markdownContent":942,"audioMediaId":943},"A Mutual Dependence","Remember, **economics is about using limited resources to provide for unlimited wants and needs**. As such, an economy in its simplest form has 2 key elements – **owners of resources**, which can be broadly categorized into land, labor, or capital, and **producers of goods and services**. These 2 groups need each other. Households own resources, but they need to be fed, clothed, and housed. Their resources cannot provide for these needs unless they are processed and converted into goods and services by firms. You can be trained in engineering, but, without access to employment, your knowledge won’t put food on the table or clothes on your back. \n\nConversely, firms need households for access to the factors of production – labor from workers, land on which to build factories, and money to invest in equipment. In return, firms pay households income for their labor, rent for their land, and interest for their capital.\n\nThese interactions involve 2 parallel markets. In the **resource market**, firms buy resources from households. In the **product market**, firms sell to households the goods and services they require for daily living.","f24b7391-980a-4be4-9ffa-f42f2a0fa9eb",[945,952],{"id":946,"data":947,"type":59,"version":25,"maxContentLevel":36},"b9bd25aa-c658-4492-a2b7-ce2165151e1f",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":948,"clozeWords":950},[949],"Economics is about using limited resources to provide for unlimited wants and needs",[951],"unlimited",{"id":953,"data":954,"type":59,"version":25,"maxContentLevel":36},"fa3c7e33-3ce4-447d-90a4-8130da1999d6",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":955,"activeRecallAnswers":957},[956],"Who are the two key groups in an economy?",[958,959],"Owners of resources","Producers of goods",{"id":961,"data":962,"type":25,"maxContentLevel":36,"version":25,"reviews":966},"3132a93c-5a76-405c-b556-0a967ae55190",{"type":25,"title":963,"contentRole":28,"markdownContent":964,"audioMediaId":965},"Enter player three","In an ideal world, the 2 main players in the economy, households and businesses, can negotiate their needs and wants with each other seamlessly. Prices for goods would reflect the value consumers place on them, and workers would be compensated fairly for their labor. In the real world, that’s not the case. The government often has to step in to ensure the system works properly. \n\nWhat role does the government play in an economy? The answer depends on who you ask. In a ‘**centrally planned economy**’ (also known as a ‘command economy’), the government runs the economy. It owns all resources and means of production, and decides not only what to produce but also how to distribute goods and services. In a ‘**free market economy**,’ the government doesn't intervene with the economy at all. Rather, the ‘invisible hand’ of the economy ensures that society meets its goals. Most economies in the world are a mix of the two, reaping the benefits of a free market while also benefiting from government intervention.","1c5678b5-7005-457d-ae8f-3e434247371b",[967,976],{"id":968,"data":969,"type":59,"version":25,"maxContentLevel":36},"b7227305-8e60-402d-af7b-bb113e8b7beb",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":970,"binaryCorrect":972,"binaryIncorrect":974},[971],"In a free market economy, government intervention is",[973],"Low",[975],"High",{"id":977,"data":978,"type":59,"version":25,"maxContentLevel":36},"de82be9c-41b1-4ec4-acc5-04ffc089b70d",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":979,"binaryCorrect":981,"binaryIncorrect":983},[980],"What is it called when the government runs the economy?",[982],"Centrally planned economy",[984],"Free market economy",{"id":986,"data":987,"type":25,"maxContentLevel":36,"version":28,"reviews":991},"0cc62c63-b29f-476d-b3a1-d647aad5afc6",{"type":25,"title":988,"contentRole":28,"markdownContent":989,"audioMediaId":990},"The tax man provides","Think of the **government as somewhat of a referee in the economy**. It tries to bring balance to an inequitable society through welfare programs that benefit the unemployed, the retired, and the underprivileged. Subsidies provided to firms also support consumers by keeping goods affordable.\n\nThe **government also addresses the issue of public goods**. Everyone wants and needs national defense, roads and bridges, and public parks. But who’s going to sacrifice precious resources in service of the entire community? If, as economists assume, we all act on self-interest, I’m not going to squander my money on the common good, especially if I can just wait for someone else to step up. Why should I be the first to sacrifice for everyone’s benefit? Of course, this line of thinking will keep societies in a stalemate, so governments intervene.\n\nWhere does the government get its funds? The government collects taxes from people’s income – and businesses’, too. **By collecting tax and providing public goods, the government performs the important role of redistributing wealth.**\n\n![Graph](image://63cc9fd0-13de-4c09-a058-3389631b4073 \"Calculating tax. Image: stevepb, CC0, via Wikimedia Commons\")","8553ffc3-517b-4076-ba56-35beea377573",[992,1000,1008,1015],{"id":993,"data":994,"type":59,"version":25,"maxContentLevel":36},"793f8ec3-424b-40d2-ad46-252cb3a0f8e7",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":995,"clozeWords":997},[996],"The government tries to bring balance to an inequitable society through welfare programs that benefit the unemployed, the retired, and the underprivileged",[998,999],"balance","inequitable",{"id":1001,"data":1002,"type":59,"version":25,"maxContentLevel":36},"98b1c9ad-a792-4a9a-a105-b99f2e72b027",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1003,"clozeWords":1005},[1004],"The government collects taxes from individual and business income to provide public services and redistribute wealth",[1006,1007],"taxes","public services",{"id":1009,"data":1010,"type":59,"version":25,"maxContentLevel":36},"9db722d7-f654-46e8-a4ce-6544becba8eb",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1011,"activeRecallAnswers":1013},[1012],"What is the government able to provide more efficiently than individuals through collectivism?",[1014],"Public goods, like defence and infrastructure",{"id":1016,"data":1017,"type":59,"version":25,"maxContentLevel":36},"b9502dfd-64dd-46ec-9bea-e683a6f8c543",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1018,"multiChoiceCorrect":1020,"multiChoiceIncorrect":1022},[1019],"Who do government welfare programs help?",[1021],"All of the these",[1023,1024,1025],"The underprivileged","The retired","The unemployed",{"id":1027,"data":1028,"type":25,"maxContentLevel":36,"version":28,"reviews":1032},"e7a0449e-12f9-4483-91d8-72928888dd27",{"type":25,"title":1029,"contentRole":28,"markdownContent":1030,"audioMediaId":1031},"A balancing act","A healthy economy takes pointers from Goldilocks. It wants neither too much nor too little money flowing around. Too much money accelerates inflation, too little leaves GDP flat. Thus, when it sees the market overheating, the government reduces money supply. When the market needs some stimulation, the government increases money supply. In doing this, the government can choose from 2 tools, **fiscal policy and monetary policy**.\n\n**Fiscal policy relates to the way governments collect and spend taxes**. Government spending releases money into the economy, encouraging businesses and consumers to spend more – an ‘expansionary’ policy. Meanwhile, increasing taxes pulls money away from firms and households, thus reducing money supply – a ‘contractionary’ policy.\n\nAnother option is using interest rates to manipulate the public’s money-borrowing activities. When government wants to slow down spending, it limits the public’s access to funds by increasing interest rates. This type of strategy is called monetary policy, and it is exercised by a country’s central bank. In the US, it falls under the remit of the Federal Reserve System, often called ‘the Fed.’\n\n![Graph](image://971b8d70-e21a-4657-a7d4-97b88bceb3d6 \"Flag of the United States Federal Reserve. Image: FOX 52, Public domain, via Wikimedia Commons\")","8fc32c30-5ad6-4faa-b46f-f53b8ed4e188",[1033,1042],{"id":1034,"data":1035,"type":59,"version":25,"maxContentLevel":36},"d6449951-5a49-44c1-a288-db4e524c3436",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1036,"binaryCorrect":1038,"binaryIncorrect":1040},[1037],"What relates to the way the government collects and spends taxes?",[1039],"Fiscal policy",[1041],"Monetary policy",{"id":1043,"data":1044,"type":59,"version":25,"maxContentLevel":36},"e1270eea-0053-4150-b181-ae6990088adf",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1045,"clozeWords":1047},[1046],"Manipulating interest rates is one example of monetary policy",[1048],"interest rates",{"id":1050,"data":1051,"type":28,"version":28,"maxContentLevel":36,"pages":1053},"2660d2d1-c45f-42de-8867-279f80fe44ae",{"type":28,"title":1052},"The Role of Money",[1054,1068,1093,1116,1147],{"id":1055,"data":1056,"type":25,"maxContentLevel":36,"version":28,"reviews":1060},"6c6a46f8-e83c-46c5-8fbc-e32239bca44e",{"type":25,"title":1057,"contentRole":28,"markdownContent":1058,"audioMediaId":1059},"Scrapping the barter system","What is money anyway? How did we evolve from bartering with one another for everyday needs into societies fixated on pieces of paper with no inherent value? These days, money might even just be numbers on a screen, with no tangible form. How is this better than the way our ancestors conducted trade?\n\n![Graph](image://083cd861-ff78-4c75-aed7-5a52a13319af \"2 chickens on a farm. Image: NIAID, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\nIn the olden days of barter – your basket of apples for 2 chickens – trade was cumbersome. You had to find the right person who had what you needed and needed what you had, or organize a 3-way exchange with someone else. Imagine walking around town all day just to find that one person who had apples and was in need of chicken.\n\nMoney has made the logistics of trade more fluid. It lets us buy or sell goods with minimum hassle. In fact, **economics defines money as anything that is widely used and accepted in exchange for other goods and services**. This means money goes beyond banknotes or checking accounts. Gold nuggets and silver count as commodity money since someone somewhere will accept them as payment for goods.","e6b09f5d-161b-4bda-a9ed-0e03641521fb",[1061],{"id":1062,"data":1063,"type":59,"version":25,"maxContentLevel":36},"e5f36f51-a679-434e-ad2a-7678c502cbe2",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1064,"clozeWords":1066},[1065],"Money has made the logistics of trade more fluid",[1067],"fluid",{"id":1069,"data":1070,"type":25,"maxContentLevel":36,"version":28,"reviews":1074},"374946ee-9492-4760-b58b-f6a86434b1f2",{"type":25,"title":1071,"contentRole":28,"markdownContent":1072,"audioMediaId":1073},"More than a medium of exchange","Money began as a medium of exchange but has since taken on more functions. How do you determine if a job offer is good? You compare the salary to how much groceries it buys, or how well it covers your expenses. This comparison is possible because you can state your monthly spending in dollar values – **money is a common yardstick** or unit of account for various goods and services.\n\nSay you accept the job offer because the salary is reasonable. Every month, you have a couple of thousand left over. What do you do? You might squirrel away the excess in a retirement fund. Money makes this possible. Imagine you received payment in apples. You couldn’t save any excess for retirement – the fruit will rot at some point. In contrast, money is a good store of value. You can hold on to it with the expectation that it would not lose its value down the line. Inflation may take a toll on it, but money won’t rot like apples, and it’s more practical to store than, say, bales of wool.\n\n![Graph](image://1e56e080-7d7a-4547-a10f-db217fc7ae8d \"Rotting apple. Image: NIAID, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")","34fdf2b7-f504-4956-beee-f3a85f3c4462",[1075,1086],{"id":1076,"data":1077,"type":59,"version":25,"maxContentLevel":36},"924005df-5f68-4c88-abcd-d44191b39c85",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1078,"multiChoiceCorrect":1080,"multiChoiceIncorrect":1082},[1079],"What serves as the common yardstick for measuring value?",[1081],"Money",[1083,1084,1085],"Gold","Food","Clothing",{"id":1087,"data":1088,"type":59,"version":25,"maxContentLevel":36},"f630337f-336a-43c9-9bb8-cae5ef6f2961",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1089,"activeRecallAnswers":1091},[1090],"Why do we use money to store value over extended periods of time?",[1092],"It doesn't readily decay",{"id":1094,"data":1095,"type":25,"maxContentLevel":36,"version":28,"reviews":1099},"e37887d5-dede-4c89-9720-8f2554b4fa96",{"type":25,"title":1096,"contentRole":28,"markdownContent":1097,"audioMediaId":1098},"No such thing as a free loan","Imagine you need a car but can’t afford one outright. The dealership won’t just lend you one and expect you to pay back a similar vehicle in the future. Who knows what that car will be worth by the time it materializes? Instead, you need to borrow money from the bank. This is the **fourth function of money – it serves as an accepted standard for making and placing a value on debt**.\n\n![Graph](image://b5358caa-2282-4d60-bc80-ad82819f24b8 \"US Car dealership. Image: Meadens of Sway Car Dealership by Mike Smith, CC BY-SA 2.0 \u003Chttps://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons\")\n\nBorrowing money does not come for free. Interest is charged to compensate lenders for the risk they take since borrowers aren't always guaranteed to pay back their debts. Thus, interest rates go up or down depending on the loan’s duration, the borrower’s reliability, and the loan’s other characteristics.\n\nYou could argue that it's easier – perhaps even cheaper – to borrow from a friend. The difference is that banks pool funds from many people, **thereby spreading risk across as many creditors**. If you default on your bank loan, the impact on each individual is spread, and, thus, less severe. But your friend’s savings take a big blow if you don’t pay them back.","a4131000-00d3-412b-a89e-21514fc6352b",[1100,1108],{"id":1101,"data":1102,"type":59,"version":25,"maxContentLevel":36},"870e4b36-57a7-400d-a94d-39d2ae8c8dd2",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1103,"clozeWords":1105},[1104],"Interest rates depend on a loan's duration, the borrower's reliability and the loan's other characteristics",[1106,1107],"duration","reliability",{"id":1109,"data":1110,"type":59,"version":25,"maxContentLevel":36},"d1276306-8d21-4f74-95a9-ba4c2ad63f2d",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1111,"clozeWords":1113},[1112],"When borrowing money, lenders always charge interest to compensate for their risk",[1114,1115],"interest","risk",{"id":1117,"data":1118,"type":25,"maxContentLevel":36,"version":28,"reviews":1122},"5759f3e2-e94c-44b7-bbbc-7fd14c196bb6",{"type":25,"title":1119,"contentRole":28,"markdownContent":1120,"audioMediaId":1121},"A market for money","**There is no economy without a resource and a product market**, but the financial market is just as important. Financial institutions bridge borrowers and lenders, serving as valuable middlemen. If the average Joe was unable to borrow money, he would be less likely to buy a car, invest in a house, or afford an education. Without easy access to capital, businesses cannot build facilities, expand their workforce, or invest in technology.\n\nJust as you can borrow from banks, you can also lend to them by depositing cash in your account. Banks pay account holders much lower interest rates on deposits, but they provide a safe place to store funds.\n\n![Graph](image://0b755080-ca15-4080-83e7-1b207395fffe \"NASDAQ stock market display. Image: bfishadow on Flickr, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\nYou can also choose to turn your savings into investments by buying stocks, which represent a small ownership stake in a company. From a firm’s perspective, issuing stock allows them to raise funds to grow their business. Alternatively, they could issue debt in the bond market. Bonds represent a safer investment for lenders, but they generally offer lower rates of return. Besides firms, the government also issues debt in the bond market.","70bd263b-2e1e-40d1-bd00-34f803925d91",[1123,1131,1138],{"id":1124,"data":1125,"type":59,"version":25,"maxContentLevel":36},"35da8770-4f76-4c95-96f0-d671c7a2fd08",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1126,"clozeWords":1128},[1127],"Compared to stocks, bonds provide a safer investment for lenders but with a lower rate of return",[1129,1130],"safer","lower",{"id":1132,"data":1133,"type":59,"version":25,"maxContentLevel":36},"42dd72a2-08a2-4d75-98a6-0433e660db36",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1134,"activeRecallAnswers":1136},[1135],"How can you lend money to a bank?",[1137],"Depositing it into an account",{"id":1139,"data":1140,"type":59,"version":25,"maxContentLevel":36},"9c201213-dbb9-4e60-810e-9f6d39466b54",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1141,"binaryCorrect":1143,"binaryIncorrect":1145},[1142],"Stocks indicate...",[1144],"ownership of a company",[1146],"debts of a company",{"id":1148,"data":1149,"type":25,"maxContentLevel":36,"version":28,"reviews":1153},"72196541-c04c-4ecf-81be-624a1e5c37d0",{"type":25,"title":1150,"contentRole":28,"markdownContent":1151,"audioMediaId":1152},"Borrowing, saving, dissaving","If borrowing money involves interest and savings erode under inflation, why bother borrowing or saving at all? The average person undergoes a typical pattern of spending and saving throughout their life. Their income assumes a bell-shaped curve over time, starting low and increasing slowly with part-time work during college. With a decent full-time job, income bumps up, and further up until a career peaks – the top of the bell shape. As they age, a person works less. Income dips. Upon retirement, they earn only small pension payments.\n\n**Spending patterns rarely match bell-shaped income patterns**. Tuition presents an expense much larger than a young adult’s meager income and most people find themselves borrowing money through student loans. Over time, spending remains flat. Without tuition, people can afford less frugal lifestyles, but spending doesn’t balloon. Thus, most people can amass savings. This is crucial in old age, when people rely on their savings to cover everyday expenses – ‘dissaving.’ So, while borrowing and saving don’t come free, they are necessary because sometimes we spend more than we earn, and sometimes it's the opposite.\n\n![Graph](image://035a143b-57d8-4348-bdd6-5539fa14f2bb \"A Graph Displaying Savings Theory\")","a61920ad-f76c-4832-b048-f161b3eeed8b",[1154],{"id":1155,"data":1156,"type":59,"version":25,"maxContentLevel":36},"86ea8f04-b978-41e3-8482-cd5812c163a5",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1157,"binaryCorrect":1159,"binaryIncorrect":1161},[1158],"The bell curve maps what kind of financial pattern?",[1160],"Saving",[1162],"Spending",{"id":1164,"data":1165,"type":29,"maxContentLevel":36,"version":28,"orbs":1168},"de5763ae-6ca1-40a7-aec7-f3f902948108",{"type":29,"title":1166,"tagline":1167},"The Ebbs and Flows of a Business Cycle","Read about 2 crucial elements in an economy’s growth journey – aggregate demand and aggregate supply.",[1169,1252,1325],{"id":1170,"data":1171,"type":28,"version":28,"maxContentLevel":36,"pages":1173},"da84d28a-6279-4a17-b4ac-427e235af520",{"type":28,"title":1172},"Economic Cycles and Recessions",[1174,1194,1220],{"id":1175,"data":1176,"type":25,"maxContentLevel":36,"version":28,"reviews":1180},"5721cf9e-95ac-414e-a3d5-473c2cdf298d",{"type":25,"title":1177,"contentRole":28,"markdownContent":1178,"audioMediaId":1179},"Growth is not linear","The wheels of life keep turning, and so it goes with the economy. It flourishes and expands, it peaks then contracts, and recovers once again after hitting a trough, and the cycle begins again. These fluctuations are a normal part of a nation’s journey toward long-term growth. **A nation’s production does not remain constant** nor does it grow at a fixed pace. Economies will encounter roadblocks, where output slows and growth reverses.\n\n![Graph](image://3df14bdb-ef92-498a-9ad7-d460a8b56ef7 \"A graph showing the growth of businesses\")\n\nWhat economists and governments try to **control is the duration and amplitutde of each phase in the cycle**. We want to prolong periods of recovery so that, in the long run, the nation still ends up in a better place than it was before.\n\nMeanwhile, **recessions refer to a significant decline in the economy and are usually declared when GDP experiences a decline for six straight months**. We try to keep recessionary periods short so as to minimize people’s hardships since unemployment rises during these times.\n\nRecessions affect not just the labor market. When businesses slow down production, land and other capital also go unused. This suggests that an economy’s resources are being wasted, as it is not producing at full potential.","cb99abc8-80c6-4d44-821a-98aa00725870",[1181,1188],{"id":1182,"data":1183,"type":59,"version":25,"maxContentLevel":36},"3d2ce264-6bbb-4b45-ae7f-0f37e699c1c1",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1184,"clozeWords":1186},[1185],"Economists and governments try to control the duration and amplitude of each phase in the business cycle",[1106,1187],"amplitude",{"id":1189,"data":1190,"type":59,"version":25,"maxContentLevel":36},"b2917d56-d593-44ea-bd4f-137bf732aa85",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1191,"clozeWords":1193},[1192],"Recessionary periods typically lead to increased unemployment",[210],{"id":1195,"data":1196,"type":25,"maxContentLevel":36,"version":28,"reviews":1200},"43c30607-52b7-45e6-ba98-5bd85c73e95f",{"type":25,"title":1197,"contentRole":28,"markdownContent":1198,"audioMediaId":1199},"What causes recessions?","Most recessions have a specific cause, though they usually arise from a combination of factors. The 2008 recession was triggered by the bursting of the US housing bubble. Specifically, it arose from excessive risk taking by financial institutions and overborrowing from consumers. With the Asian Financial Crisis, the loss of confidence from foreign investors created a downward spiral for East and Southeast Asia.\n\nRecessions happen for many reasons – **a shrinking money supply, poor business decisions, bad government policies, or a loss of confidence**. Regardless of the cause, how bad a recession gets and how soon it ends largely depends on government response. But oftentimes, we only realize we’re in a recession when we’re already deep into one, simply because of the way it is defined – six straight months of GDP decline. Economist **Claudia Sahm** offers an early warning sign. When unemployment rises 0.5% relative to its lowest point from the past 12 months, **the Sahm indicator** suggests that governments should act quickly. Otherwise, the economy will enter a recession if the current momentum continues.\n\n![Graph](image://21a378a5-c5ef-4fc6-a837-78b2907307f2 \"US Economist, Claudia Sahm. Image: Claudia Sahm, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")","f2a8e6e2-443d-4bf8-a992-f7b1774cf591",[1201,1213],{"id":1202,"data":1203,"type":59,"version":25,"maxContentLevel":36},"7dd1d769-f908-4e0e-badd-0f876d85a999",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1204,"multiChoiceCorrect":1206,"multiChoiceIncorrect":1208},[1205],"What indicator is used to predict a recession?",[1207],"The Sahm Indicator",[1209,1210,1211,1212],"The Milton Keynes Model","The Financial Crisis Indicator","Water Divination","The Hemline Index",{"id":1214,"data":1215,"type":59,"version":25,"maxContentLevel":36},"d279a335-16b2-4ba3-a112-27bb8460fcfd",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1216,"clozeWords":1218},[1217],"Recessionary periods happen because of a shrinking money supply, poor business decisions, bad government policies or a loss of confidence.",[682,1219],"confidence",{"id":1221,"data":1222,"type":25,"maxContentLevel":36,"version":25,"reviews":1226},"2e51aa93-5475-4474-b374-d3ef6e27854a",{"type":25,"title":1223,"contentRole":28,"markdownContent":1224,"audioMediaId":1225},"When the price is not right","Consumption drives economies. When spending decelerates, the economy follows. But, in macroeconomics, how much one person wants to spend – demand – is inconsequential. Instead, we look at **aggregate demand, the total demand for goods and services across the market**. Aggregate demand is important because it affects whether businesses produce more, which ultimately impacts GDP.\n\nAggregate demand shares an inverse relationship with price levels, the average price of all goods and services in the market. When prices rise, aggregate demand falls. Thus, when prices rise, GDP falls. Why does aggregate demand behave this way? Take a consumer’s perspective. If you have a fixed monthly budget and prices rise, you’ll buy less – not because you want to, but because inflation lets you afford less. Your real wealth decreases.\n\n**Lenders compensate for inflation by raising interest rates**. Consequently, business managers may delay big investments. Young families may postpone house-hunting. Aggregate demand drops because loans have become costlier and, thus, less attractive.\n\nFinally, demand from other countries drops when prices rise. Why pay more when they can buy the same goods cheaper elsewhere?","578d7bc1-a26e-49e2-8355-0a5762ca3842",[1227,1236,1243],{"id":1228,"data":1229,"type":59,"version":25,"maxContentLevel":36},"8fd70c4f-6745-4274-9562-b7a5e9ac89e7",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1230,"binaryCorrect":1232,"binaryIncorrect":1234},[1231],"What happens to interest rates when inflation occurs?",[1233],"It increases",[1235],"It decreases",{"id":1237,"data":1238,"type":59,"version":25,"maxContentLevel":36},"d3775871-2331-4b84-a1b5-0cdbca572c08",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1239,"clozeWords":1241},[1240],"Aggregate demand shares an inverse relationship with price levels",[1242],"inverse",{"id":1244,"data":1245,"type":59,"version":25,"maxContentLevel":36},"ebe3ea07-3de1-45cb-baae-f2f85b0f8a08",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1246,"binaryCorrect":1248,"binaryIncorrect":1250},[1247],"To measure demand on a macroeconomic level, we use",[1249],"Aggregate demand",[1251],"Net demand per capita",{"id":1253,"data":1254,"type":28,"version":28,"maxContentLevel":36,"pages":1256},"b7ae04d6-c782-458e-9bd0-2c551860342d",{"type":28,"title":1255},"Price Dynamics and Supply",[1257,1289,1303],{"id":1258,"data":1259,"type":25,"maxContentLevel":36,"version":28,"reviews":1263},"19b9bc91-afe5-4690-a9cb-0c166f5c99f3",{"type":25,"title":1260,"contentRole":28,"markdownContent":1261,"audioMediaId":1262},"Supply, the long and short of it","To fulfill demand, there must be a sufficient supply of goods. Since we’re looking at how the economy moves as a whole, we pay attention to **aggregate supply: the total quantity of goods and services produced within the economy**.\n\n![Graph](image://98091855-6077-4443-b537-1879c920cb92 \"Insufficient grocery supply in supermarket. Image: Travis Wise from Bay Area, California, United States, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\nIn the short run, this quantity moves alongside price levels: higher prices mean suppliers profit more with each unit of product sold. So, when price levels go up, businesses will produce more in the short run to maximize profit. Likewise, when price levels drop and profits suffer, businesses slow down production.\n\nIn the long run, aggregate supply has no relationship to price level. How much an economy can sustainably produce is limited by its resources – its infrastructure, its workforce, its labor productivity, as well as the amount of capital businesses have invested in the economy. Even if prices tripled or increased tenfold, aggregate supply may increase in the short run, but it will always gravitate back to the maximum production level based on its real capacity.","919f3f83-1b08-492a-9a38-11b96d01bc84",[1264,1274,1282],{"id":1265,"data":1266,"type":59,"version":25,"maxContentLevel":36},"9d648c2a-6e33-4213-bb88-e28c429bf772",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1267,"activeRecallAnswers":1269},[1268],"What four things impact aggregate supply?",[1270,1271,1272,1273],"infrastructure","workforce","labor productivity","investment capital",{"id":1275,"data":1276,"type":59,"version":25,"maxContentLevel":36},"c80925e2-e52d-4a4c-8ab1-974dd3d710b0",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1277,"clozeWords":1279},[1278],"When prices increase, businesses produce more goods in the short term",[1280,1281],"more","short term",{"id":1283,"data":1284,"type":59,"version":25,"maxContentLevel":36},"f990ac87-0f34-444b-9e39-a1c08049a09f",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1285,"activeRecallAnswers":1287},[1286],"What is aggregate supply equal to?",[1288],"The total quantity of goods and services produced within the economy",{"id":1290,"data":1291,"type":25,"maxContentLevel":36,"version":28,"reviews":1295},"e5ff2a05-494a-44d4-b576-e75f8fc03384",{"type":25,"title":1292,"contentRole":28,"markdownContent":1293,"audioMediaId":1294},"Price changes can be tricky","Let’s put together what we know about aggregate demand and supply. Imagine living in Yor, a tiny island-country, with only 1 neighbor. You sell pies for a living. Your neighbor, Jimmy, doesn't work but receives a monthly stipend – from whom, you don’t know, nor do you ask. What matters is Jimmy loves your pies. He’s one of your 2 customers. Susan, an elderly lady in an island a swim away, is an occasional customer.\n\n![Graph](image://d96a7ce0-aa8b-46c7-a168-af4ae7ba1a25 \"The Aggregate Supply-Demand Model\")\n\nEvery year, you make 120 pies, selling at $10 apiece. This year you decide to experiment, disturbing equilibrium by raising prices to $12. Demand moves along the aggregate demand (AD) line, down to 60 pies.\n\nJimmy has a fixed income. At $12, he can afford fewer pies. And Susan? She decides to buy cake from another nearby island – they're actually cheaper at $9 each.\n\n![Graph](image://c122c085-54a8-48c3-abfe-7f127f1c7b34 \"Another variation on the model\")\n\nHigher prices net you more profit, so you slave away day and night to bake more pies. At $12 each, you want to produce 140 pies a year. The only problem? Demand has fallen, so some pies are left unsold – a surplus. In this case you'll get more revenue if you keep your prices at $10 per pie.","f577d40a-ecfa-46f0-9f05-0a50f8d8f4cd",[1296],{"id":1297,"data":1298,"type":59,"version":25,"maxContentLevel":36},"2aea5e40-7bdf-4aca-ad97-c7da7b359b91",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1299,"binaryCorrect":1301,"binaryIncorrect":1302},[1300],"Do sellers want to produce a surplus?",[430],[432],{"id":1304,"data":1305,"type":25,"maxContentLevel":36,"version":28,"reviews":1309},"e39f229f-1125-4b24-a05b-a0f10ca79385",{"type":25,"title":1306,"contentRole":28,"markdownContent":1307,"audioMediaId":1308},"Why production is limited in the long run","You decide that maybe you could still produce more and sell more at $12 a pie, if only you could tap into new markets. Maybe the lady who sells Susan cake wants some pie for a change. She’s supposed to have a sweet tooth – and many kids to feed.\n\n![Graph](image://1896d1a4-bdaf-4027-9c6c-f0fc962b3048 \"The Aggregate Supply-Demand Model with Long Run Aggregate Supply\")\n\nThe thing is, you can only overwork yourself so much. Making 120 pies a year was a full-time job. At 140, you barely had any sleep. Any more than that, your oven might give up on you. That's why, over the long run, you can only sustainably produce 120 pies per year. If you wanted to expand production, you’d have to invest in a bigger oven, hire another employee (maybe not Jimmy, he loves pie filling a little bit too much), or otherwise find a way to increase productivity.\n\nThis is why, as shown in the graph, **long-run aggregate supply is a vertical line**. It’s completely independent of price level. Rather, it is a function of other factors that dictate your production capacity.","57471f3e-9b21-4a7d-a31e-c0acbd347dab",[1310,1317],{"id":1311,"data":1312,"type":59,"version":25,"maxContentLevel":36},"07b93ea3-f038-4af7-a876-28a21cb65c9c",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1313,"activeRecallAnswers":1315},[1314],"What determines long-run aggregate supply?",[1316],"Factors dictating production capacity",{"id":1318,"data":1319,"type":59,"version":25,"maxContentLevel":36},"558c911c-ce4f-454f-a036-dbc5318ca87d",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1320,"clozeWords":1322},[1321],"Long-run aggregate supply can be graphed as a vertical line independent of price level",[1323,1324],"vertical","price level",{"id":1326,"data":1327,"type":28,"version":28,"maxContentLevel":36,"pages":1329},"407e75cb-b27a-49b8-9288-962805572eea",{"type":28,"title":1328},"Shocks and Demand Shifts",[1330,1358,1371,1393,1419],{"id":1331,"data":1332,"type":25,"maxContentLevel":36,"version":28,"reviews":1336},"b75774db-2607-4b79-9351-12a8547e516d",{"type":25,"title":1333,"contentRole":28,"markdownContent":1334,"audioMediaId":1335},"Shocks, demand is up!","Suppose on your day off you visited neighboring islands to promote your pies. Good news, demand is up – way up! **Economists call this change a positive demand shock**. It pushes the aggregate demand (AD) line upward and to the right, as reflected by the green line in the graph. Here, the demand shift occurred due to an increase in export – remember, orders are coming in from other island-countries.\n\n![Graph](image://b52caeb8-0d6c-4789-b3e1-191d2d5e98b7 \"The Aggregate Supply-Demand Model when Demand Increases\")\n\nWhat else might shift aggregate demand? Maybe your neighbor Jimmy starts receiving a larger monthly stipend and wants to spend the extra money on more pies. Moving away from your tiny island-country and into a more traditional economy, aggregate demand increases when a government ramps up its spending or when businesses pump funds into new investments.\n\nIn contrast, **higher income taxes or fear of an economic downturn would reduce an economy’s spending**, because consumers have less to spend or are less willing to spend. They might choose to hold on to what they have now in anticipation of a tighter budget in the future. These changes will shift the AD line downward and to the left.","0e21a149-11f7-44e5-b628-0724cd09115d",[1337,1344,1352],{"id":1338,"data":1339,"type":59,"version":25,"maxContentLevel":36},"1c7f4108-2e69-4256-808f-31d98b6a3918",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1340,"activeRecallAnswers":1342},[1341],"What is it called when demand is significantly increased?",[1343],"Positive demand shock",{"id":1345,"data":1346,"type":59,"version":25,"maxContentLevel":36},"38cddd10-10c6-45ce-9e8f-ecaabb606128",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1347,"binaryCorrect":1349,"binaryIncorrect":1350},[1348],"What increases when a government ramps up its spending or when businesses pump funds into new investments",[1249],[1351],"Aggregate supply",{"id":1353,"data":1354,"type":59,"version":25,"maxContentLevel":36},"7067c0bf-3b78-442f-9fa5-1bc383368116",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1355,"clozeWords":1357},[1356],"Higher taxes typically decrease spending in an economy",[380],{"id":1359,"data":1360,"type":25,"maxContentLevel":36,"version":28,"reviews":1364},"e142ac5f-486e-4682-a821-6573f89473e4",{"type":25,"title":1361,"contentRole":28,"markdownContent":1362,"audioMediaId":1363},"An economy on overdrive","What else happens when AD shifts? For the island-country of Yor, **we see a new point of equilibrium for aggregate supply and aggregate demand** – one that involves higher prices along with a higher level of production to meet increased demand. In the graph, we see this as point B.\n\n![Graph](image://3e5efdd7-c949-468d-9950-13759f34ae9f \"The Aggregate Supply-Demand Model with Differing Levels of Supply and Demand\")\n\nBut remember that producing above **Long-Run Aggregate Supply (LRAS)** is not sustainable. When an economy produces beyond LRAS, it is said to be overheating or experiencing inflation. In your case, you’ll eventually face higher costs of production because you need to hire another employer or compensate yourself for working overtime. Prices will go further up, and, because prices have increased yet again, demand will drop.\n\nIn this scenario, the meeting point for aggregate supply and aggregate demand starts from point A, temporarily stops at point B, and finally stabilizes at point C in the graph. At the end of the day, prices will have gone up, but real output or quantity produced moves back to where it started.","3086e2d4-d2d9-4f6b-be82-3d54ebfd84ce",[1365],{"id":1366,"data":1367,"type":59,"version":25,"maxContentLevel":36},"6e730161-aad4-4f21-9022-4953a98b3fcb",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1368,"clozeWords":1370},[1369],"Producing above long-run aggregate supply is unsustainable and contributes to inflation",[295,631],{"id":1372,"data":1373,"type":25,"maxContentLevel":36,"version":28,"reviews":1377},"118027d3-473a-4cfe-af39-5d25641e9353",{"type":25,"title":1374,"contentRole":28,"markdownContent":1375,"audioMediaId":1376},"The perils of a negative demand shift","Imagine that, instead of expanding, aggregate demand contracts. Jimmy’s monthly stipends have shrunk. Unfortunately, all his money goes to pies, so his spending cut impacts only you. With the AD curve shifting downward, equilibrium shifts from A to B. With less demand, production slows down and lands below full capacity. Economists call this a negative output gap or recessionary gap.\n\n![Graph](image://971aeded-0bae-45a5-b5a7-f30b0f8f7c13 \"The Aggregate Supply-Demand Model with Lower Demand\")\n\n**With revenue down, businesses must cut costs** – maintaining the same level of expenses risks losing them money. Firms spend a lot on wages, but they can’t just cut workers’ pay. **Wages are sticky** – they don’t move down easily. Imagine receiving a pay cut. Wouldn’t you retaliate by slacking off at work?\n\nUnable to cut wages, firms are forced to lay off workers. This can send an economy into a tailspin. Jobless people have little to spend, so aggregate demand will fall further, possibly resulting in more layoffs. The economy will eventually stabilize in the long run, but the adjustment process is slow. If the cycle isn’t disrupted, recession may drag on, so the government usually intervenes.","68bcba9c-0514-441c-9f8b-49fd01c16612",[1378,1385],{"id":1379,"data":1380,"type":59,"version":25,"maxContentLevel":36},"05d0c083-f722-4681-8f50-fcb7be1abe2a",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1381,"activeRecallAnswers":1383},[1382],"What is it called when demand is low and production lands below full capacity?",[1384],"Negative output gap",{"id":1386,"data":1387,"type":59,"version":25,"maxContentLevel":36},"684b6b67-ce52-4f3d-a127-3b1ceefef74d",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1388,"clozeWords":1390},[1389],"Because firms are unable to cut wages, firms are forced to lay off workers",[1391,1392],"wages","lay off",{"id":1394,"data":1395,"type":25,"maxContentLevel":36,"version":28,"reviews":1399},"fb702256-c784-4095-bb60-d8c55b9efd76",{"type":25,"title":1396,"contentRole":28,"markdownContent":1397,"audioMediaId":1398},"Oil, and other commodities","Shocks can also occur on the supply side. Take the 1970s oil crisis, when oil prices quadrupled. Gasoline stations saw long lines of vehicles but had no gas to give. Businesses crippled by outrageous oil prices not only raised prices to remain competitive, their production also fell.\n\n![Graph](image://2a90f75e-81ae-48cf-8c80-b93d4919a454 \"The Aggregate Supply-Demand Model with Differing Supply\")\n\nThe graph above shows a negative supply shock. The **Aggregate Supply** (AS) curve shifts inward, with the new equilibrium below the economy’s potential GDP, represented by LRAS. This indicates that the economy is not operating at full potential. In effect, unemployment will increase.\n\nGeopolitical events and natural disasters are common supply shocks. War disrupts the steady flow of goods from international trade partners; severe flooding and wildfires can wipe out a season’s harvest. The COVID-19 pandemic also resulted in extended lockdowns, throwing supply chains in disarray and placing severe constraints on global production.\n\nOn a positive note, the AS curve may also shift outward, representing a positive supply shock. Technological innovations like Henry Ford’s assembly line boost productivity, allowing businesses to deliver goods and services more efficiently.","815158e3-3d11-47a1-aa41-fe6024cda063",[1400,1408],{"id":1401,"data":1402,"type":59,"version":25,"maxContentLevel":36},"3fa76e36-d0f6-4cf3-8ed7-dd86c9d1fffd",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1403,"clozeWords":1405},[1404],"Supply shocks can commonly be caused by geopolitical events and natural disasters",[1406,1407],"geopolitical","natural disasters",{"id":1409,"data":1410,"type":59,"version":25,"maxContentLevel":36},"f61b46b5-78f4-4ca5-95be-8b29ae4a53d1",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1411,"multiChoiceCorrect":1413,"multiChoiceIncorrect":1415},[1412],"If the short-term aggregate supply equilibrium is below long-run aggregate supply, the economy is operating...",[1414],"Below full potential",[1416,1417,1418],"Above full potential","At full potential","Strangely",{"id":1420,"data":1421,"type":25,"maxContentLevel":36,"version":28,"reviews":1425},"27be93b6-8e88-4107-a94b-32389b5efa4a",{"type":25,"title":1422,"contentRole":28,"markdownContent":1423,"audioMediaId":1424},"Let it be… or not","No matter what shocks upset an economy, theory has it that production will always gravitate back to full output. Until they've reached equilibrium, markets will keep adjusting. To quote John Lennon, \"Everything will be okay in the end. If it's not okay, it's not the end.” Why then is it important for governments to intervene when economies overheat or spiral down?\n\n![Graph](image://fb98dc58-a977-4b39-bd16-6e38fa46fa31 \"John_Lennon, 1974. Image: Tony Barnard, Los Angeles Times, CC BY 4.0 \u003Chttps://creativecommons.org/licenses/by/4.0>, via Wikimedia Commons\")\n\nLeft on its own, an economy experiencing inflation will see prices spin out of control, turning families’ hard-earned savings into dust. Saving money becomes meaningless, planning for the future is impossible.\n\n**Recessions can be just as bad – or worse – left unaddressed**. During the Great Depression, unemployment rose above 20%. Families were displaced, and instability impeded on children’s education. The impacts were long-lived. In 2008, the collapse of financial institutions hampered entrepreneurship and investment. When recessions are severe and drawn-out, social progress is set back, especially for low-income families. So, whereas things will be alright in the end, we can say that economic upheavals affect families differently. And so, this begs the question of **whether interventions should be implemented, and at what point**.\n\n![Graph](image://b27b6ec8-eb90-4948-ab04-f7ad17180a19 \"Recently unemployed men sit head-in-hands on a bench during the Great Depression. Image: Mark Benedict Barry, CC0, via Wikimedia Commons\")","a53f2dda-6b80-47b7-85e4-269d850bfe50",[1426,1435],{"id":1427,"data":1428,"type":59,"version":25,"maxContentLevel":36},"5ff96314-424e-4b40-a9da-bb125ca86c24",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1429,"binaryCorrect":1431,"binaryIncorrect":1433},[1430],"When recessions are severe and drawn out, social progress is...",[1432],"set back",[1434],"accelerated",{"id":1436,"data":1437,"type":59,"version":25,"maxContentLevel":36},"e072e2d5-cc13-465b-9473-51242659d938",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1438,"clozeWords":1440},[1439],"Macroeconomic theory suggests that production will always gravitate back to full output after a shock",[1441,1442],"full output","shock",{"id":1444,"data":1445,"type":29,"maxContentLevel":36,"version":28,"orbs":1448},"7b58d2fe-c6e2-4216-807f-10dea6147808",{"type":29,"title":1446,"tagline":1447},"Taxes and Spending","Taxation and government spending are commonly used intervention tools during crises. What dangers and limitations do they present?",[1449,1572],{"id":1450,"data":1451,"type":28,"version":28,"maxContentLevel":36,"pages":1453},"6f57e604-0087-4b7f-82a5-0ea909778aed",{"type":28,"title":1452},"Keynesian Economics and Government Intervention",[1454,1479,1502,1525,1541],{"id":1455,"data":1456,"type":25,"maxContentLevel":36,"version":28,"reviews":1460},"29c7458b-47d5-4195-83eb-ede49c01faef",{"type":25,"title":1457,"contentRole":28,"markdownContent":1458,"audioMediaId":1459},"Keynes and the US government’s CARES","Nowadays, the government has the thankless job of problem-solving a troubled economy. But, until the 1930s, most economists agreed that markets were self-correcting and that government intervention actually caused more harm than good.\n\n![Graph](image://ea7418fa-82bd-4caa-9373-23ffb861ebb0 \"English economist and philosopher, John Maynard Keynes. Image: Unknown, dedicated to Bettmann Archive, Public domain, via Wikimedia Commons\")\n\n**John Maynard Keynes** 1936 book, *The General Theory of Employment, Interest and Money*, challenged the then conventional economic theory. Why wait for the economy to fix itself – an unnecessarily drawn-out process that prolongs people’s hardship – if the government can step in now? **The Keynesian perspective emphasizes the role of aggregate demand during recessions**. Because lack of spending is pushing the economy down, increased spending will solve the problem. But also, because many consumers are jobless due to the economic slowdown, the government has to make up for the shortfall in spending.\n\nThis is where fiscal policy comes in. During the COVID-19 pandemic, the US government provided small businesses with relief packages and loans through their Coronavirus Aid, Relief, and Economic Security (CARES) Act. This was done with the intent of propping up the US economy amidst a time of great uncertainty and economic slowdown.","4d32484d-a3f9-4a7a-a690-7d71c73d7f49",[1461,1468],{"id":1462,"data":1463,"type":59,"version":25,"maxContentLevel":36},"0204d783-34d6-4336-9078-f5a2297bdf04",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1464,"activeRecallAnswers":1466},[1465],"What is the key characteristic of Keynesian policy in response to a recession?",[1467],"Spending money",{"id":1469,"data":1470,"type":59,"version":25,"maxContentLevel":36},"eee18386-ffae-43cc-a56c-212b78988a01",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1471,"multiChoiceCorrect":1473,"multiChoiceIncorrect":1475},[1472],"Who wrote 'The General Theory of Employment, Interest and Money'?",[1474],"John Maynard Keynes",[1476,1477,1478],"John Milton Keynes"," John Neville Keynes","John Ashton Keynes",{"id":1480,"data":1481,"type":25,"maxContentLevel":36,"version":28,"reviews":1485},"09154255-4c55-481a-bcd0-1a9892cd9ca1",{"type":25,"title":1482,"contentRole":28,"markdownContent":1483,"audioMediaId":1484},"Fiscal policy goes both ways","**Fiscal policy redirects an economy by adjusting how governments tax and spend**. When an economy is in a recession, the government decreases taxes or spends more – an expansionary fiscal policy – to stimulate the economy. Lower taxes allow workers to enjoy a larger disposable income, which boosts their spending. Increased government spending through infrastructure projects creates jobs. More jobs mean more income and increased spending, thus setting the economy on a course toward recovery.\n\nSimilarly, **the government uses fiscal policy to rein in aggregate demand and control inflation**. When the economy overheats from rapid growth, it is in danger of experiencing unprecedented levels of inflation. Thus, the government raises taxes or reduces spending to slow economic growth to a more manageable level to avoid losing control. We call this contractionary fiscal policy because it reduces aggregate demand.\n\nThe US government implements expansionary fiscal policies in times of crises. The American Recovery and Reinvestment Act of 2009 allocated $288 billion in tax relief and $111 billion on infrastructure and science, among others. Joblessness still grew as a result of the Global Financial Crisis, but economists agree that the Recovery Act saved the US from a deep depression.\n\n![Graph](image://0aa7e26a-834e-4cef-8a1a-f8f9ac0d084f \"Barack Obama signs American Recovery and Reinvestment Act of 2009 on February 17. Image: Pete Souza, Public domain, via Wikimedia Commons\")","eb80c20b-db73-400f-91c6-d42d2050bb61",[1486,1493],{"id":1487,"data":1488,"type":59,"version":25,"maxContentLevel":36},"a5386d5f-b646-43d0-8db8-e06d21e4c840",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1489,"clozeWords":1491},[1490],"When the economy is at risk of overheating, the government increases taxes",[1492],"increases",{"id":1494,"data":1495,"type":59,"version":25,"maxContentLevel":36},"da3fd636-c401-430f-961c-95c0e2c6bef1",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1496,"binaryCorrect":1498,"binaryIncorrect":1500},[1497],"What is fiscal policy which reduces aggregate demand called?",[1499],"Contractionary fiscal policy",[1501],"Expansionary fiscal policy",{"id":1503,"data":1504,"type":25,"maxContentLevel":36,"version":28,"reviews":1508},"7267a580-e680-4745-a48e-75629db41c80",{"type":25,"title":1505,"contentRole":28,"markdownContent":1506,"audioMediaId":1507},"Automatic mechanisms of government","There is no doubt that fiscal policy is a useful economic tool, but it has its share of doubters, especially within government. One of the problems with enacting fiscal policy as needed – **‘discretionary fiscal policy’** – is that bureaucracy works painstakingly slowly. When politicians argue over the finer details of relief programs, aid takes a while to reach recipients.\n\nTo put 2 cliches together, an ounce of prevention is worth a pound of cure, but it's better late than never. Discretionary policies are useful for one-off events like terrorist attacks, global pandemics, and severe financial crises.\n\nBut with an economy’s cyclical nature, **downturns are a question of when, not if**. As such, governments have mechanisms built into their budget to provide immediate action whenever certain economic conditions are met. These automatic stabilizers take the form of welfare programs, unemployment benefits, and progressive income taxes. Unemployment benefits kick in when someone is laid off from work. Likewise, progressive income taxes impose lower rates when profits fall. **These mechanisms are effective because they activate automatically and provide relief** to those who need it most.","6663113e-0a43-4cfa-94c1-2a6570fdd046",[1509,1517],{"id":1510,"data":1511,"type":59,"version":25,"maxContentLevel":36},"182757c1-f3a1-4c12-884d-5682aaa64194",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1512,"clozeWords":1514},[1513],"Automatic economic fiscal stabilizers include welfare programs, unemployment benefits and progressive income taxes",[1515,79,1516],"welfare","income taxes",{"id":1518,"data":1519,"type":59,"version":25,"maxContentLevel":36},"723c0bed-a066-42c4-9e7a-a07230aaa6a1",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1520,"clozeWords":1522},[1521],"Discretionary fiscal policy lags when crises appear unexpectedly because bureaucracy works painstakingly slowly",[1523,1524],"Discretionary","bureaucracy",{"id":1526,"data":1527,"type":25,"maxContentLevel":36,"version":28,"reviews":1531},"10799ea5-8fd3-4eea-8531-bba6e5b7cffa",{"type":25,"title":1528,"contentRole":28,"markdownContent":1529,"audioMediaId":1530},"Sending aid to the right people","**Policymakers need to ensure that their programs reach the right people**. Take infrastructure programs, which usually create jobs in construction. If industry unemployment is low, the new jobs aren't necessary. In fact, they just pull workers away from the private sector. Under these circumstances, the program fails to create any significant impact on unemployment or demand.\n\n![Graph](image://b4fb97e4-e6b8-4217-8671-2bfb6a51b19e \"Construction helmets hung up. Image: Michael Coghlan from Adelaide, Australia, CC BY-SA 2.0 \u003Chttps://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons\")\n\nIn 2020, the US government’s CARES Act provided assistance to families and businesses affected by the COVID-19 pandemic. At that time, many retail and hospitality workers lost their jobs. As such, stimulus payments would have benefited them the most instead of workers in other industries, whose jobs weren't at risk.\n\nWhy does it matter where funds are funneled? Any extra money received by someone who doesn't need it is just that – extra money. Instead of being spent, it’s put aside for another day. But a household that needs the money will spend it on groceries. The grocer might then spend part of that on employees’ wages, and the initial amount the government sent would have created a ripple effect across the economy. Flowing money is better than stagnant money.","62d04e6e-7fce-4644-860c-f3819177a9cc",[1532],{"id":1533,"data":1534,"type":59,"version":25,"maxContentLevel":36},"e7b1d856-0af2-4a36-9938-df2fea604823",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1535,"binaryCorrect":1537,"binaryIncorrect":1539},[1536],"According to Macroeconomists, what type of money is better?",[1538],"Flowing money",[1540],"Stagnant money",{"id":1542,"data":1543,"type":25,"maxContentLevel":36,"version":28,"reviews":1547},"bcf3dac2-d0de-40e3-b0f8-6d87163cca72",{"type":25,"title":1544,"contentRole":28,"markdownContent":1545,"audioMediaId":1546},"Finding money in a pinch","If fiscal policy successfully keeps economies stable, why the ongoing debate? One crucial factor is that government spending requires money – oftentimes money that the government doesn't have on hand.\n\n![Graph](image://3eb98c5a-4e58-46a7-9036-b7e48330c792 \"Woman sorts through printed money. Image: RIA Novosti archive, image #978774 / Alexey Kudenko / CC-BY-SA 3.0, CC BY-SA 3.0 \u003Chttps://creativecommons.org/licenses/by-sa/3.0>, via Wikimedia Commons\")\n\nWhen the government spends more than it collects from taxes, it can find money in 1 of 3 ways, 2 of which involve modifying economic levels. **The first way is by printing more money**. Unfortunately, that creates inflation by growing money supply at rates the economy cannot sustain. **The second option is raising taxes**, which ultimately hurts consumers. If you know that taxes will eat up even more of next month’s pay, won’t you cut spending in anticipation? Surely, that’s not what expansionary fiscal policy wants to achieve.\n\nSince its first 2 options for funding fiscal policy create undesirable consequences, the government usually resorts to its **third option – borrowing money**. Although not as problematic, government borrowing raises an economy’s national debt. At some point, these debts – and their interest payments – must be paid. And how does the government pay for these debts? You guessed it. Printing more money, raising more tax dollars, or issuing even more debt.","4b63af3a-fd6f-45d1-bad5-57122f215535",[1548,1555,1563],{"id":1549,"data":1550,"type":59,"version":25,"maxContentLevel":36},"291bfb24-8ded-4dd0-8bde-8931b0b35d73",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1551,"activeRecallAnswers":1553},[1552],"What is a drawback of printing money?",[1554],"It creates inflation",{"id":1556,"data":1557,"type":59,"version":25,"maxContentLevel":36},"48819be8-7a29-4e4a-8214-68e4a501e1ea",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1558,"clozeWords":1560},[1559],"Raising taxes can hurt consumers because it will stop them from spending money",[1561,1562],"consumers","spending",{"id":1564,"data":1565,"type":59,"version":25,"maxContentLevel":36},"58f94827-b696-4991-9e9b-8233fa3e3164",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1566,"activeRecallAnswers":1568},[1567],"What are the three ways government can find money?",[1569,1570,1571],"Printing more money","Raising taxes","Borrowing money",{"id":1573,"data":1574,"type":28,"version":28,"maxContentLevel":36,"pages":1576},"f2cd806d-8a9f-485a-80cc-cde83be4d702",{"type":28,"title":1575},"National Debt and Fiscal Policy",[1577,1592,1613,1639],{"id":1578,"data":1579,"type":25,"maxContentLevel":36,"version":28,"reviews":1583},"495acccb-7c72-4980-81cf-e42e82ffffd8",{"type":25,"title":1580,"contentRole":28,"markdownContent":1581,"audioMediaId":1582},"The lender side of government debt","For most countries, national debt is not a grave concern. Lenders are confident that they will be repaid with future tax revenues. The government can also choose to roll over their debts – that is, taking on new debt to pay off old ones. **As long as lenders trust in the government’s ability to pay at some point, things are fine.**\n\nHowever, once the seeds of doubt are sowed, lenders demand higher rates on government borrowing to compensate for increased risk. If the government has to print money for debt repayment, inflation is right around the corner. In fact, it doesn't matter if the government actually does. As long as people believe it, they’ll demand higher interest rates in anticipation of inflation.\n\nThis behavior takes place across the board, not just with government borrowing. With higher interest rates, private investment and spending are put on hold. So, while government spending increases, it may be offset by less private spending.","c9f1d4b5-76d8-42b1-ab42-affffaa4350b",[1584],{"id":1585,"data":1586,"type":59,"version":25,"maxContentLevel":36},"8993168a-e7e4-4cf6-bb04-36f5f07448f2",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1587,"binaryCorrect":1589,"binaryIncorrect":1591},[1588],"What is more important in catalysing higher interest rates?",[1590],"the perception of inflation",[631],{"id":1593,"data":1594,"type":25,"maxContentLevel":36,"version":28,"reviews":1598},"e0803fab-44cf-4152-936d-5d06d9fcd909",{"type":25,"title":1595,"contentRole":28,"markdownContent":1596,"audioMediaId":1597},"Debating the pros and cons of national debt","Some people bristle at foreign debt, fearing it might leave a country vulnerable to pressures from other countries in what's called ‘debt-trap diplomacy.’ Besides political pressure, reliance on foreign debt comes with a fair share of interest payments. Effectively, the borrowing country’s citizens pay interest to the lending country, diverting tax revenues overseas instead of using funds locally. This impedes savings and investment within the borrowing country, especially when much of the government’s tax revenues are allocated to interest payments alone.\n\nDebt is blamed for creating a burden on future generations. Countries don’t worry about repaying long-term loans until they expire decades down the line. By then, the citizens paying off these loans are a different generation than the one that received immediate benefits from the debt.\n\nWhen it comes to the tradeoff, others believe that the investment return will provide more long-term good. When debt is used for public investment, future generations will share in its fruit. Investing in long-term thinking through infrastructure, telecommunications, hospitals, and schools sets up future generations for economic growth.\n\n![Graph](image://a9ea64e7-2fdd-4c26-929d-7ef1fd68e3ec \"Construction of a new school building in Oldham, UK. Image: New School Building by Anthony Parkes, CC BY-SA 2.0 \u003Chttps://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons\")","8b62367f-db7f-4ccc-b584-e3d9b9637817",[1599,1606],{"id":1600,"data":1601,"type":59,"version":25,"maxContentLevel":36},"01edc5b5-ebc2-495c-a4d4-9c5ba9879e30",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1602,"activeRecallAnswers":1604},[1603],"What types of public investments benefit future generations?",[1605],"Infrastructure, telecommunications, hospitals and schools",{"id":1607,"data":1608,"type":59,"version":25,"maxContentLevel":36},"e851249e-8aee-494e-aa6a-910c124def82",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1609,"clozeWords":1611},[1610],"Some disadvantages of national debt involve ceding geopolitical leverage, high interest payments and outsourcing problems to future generations",[1612,1114],"geopolitical leverage",{"id":1614,"data":1615,"type":25,"maxContentLevel":36,"version":25,"reviews":1619},"3ae51ee9-719a-4820-bb7a-d1ba9ea9ae03",{"type":25,"title":1616,"contentRole":28,"markdownContent":1617,"audioMediaId":1618},"Don’t panic, it's local","Even when governments issue debt locally, dissenters of deficit spending disapprove. Think about who can afford to lend the government large sums of money locally. It’s the affluent that have money to spare. So, taking off the nationalistic lens, inequality is still part of the picture. Taxes, in the form of interest payments, are benefiting the wealthy disproportionately due to internal debt.\n\nUltimately, **it's a balancing act that the government needs to manage**. In times of crisis, politicians have no choice on the matter, especially when the nation needs the money now. And there’s no doubt that nudging the economy with stimulus programs does spark renewed confidence in the public to spend.\n\nBut, in times of surplus, the government should reduce debt to a healthy level. Unfortunately, prosperity drives us to spend more, not scrutinize our national budget like Scrooge. We don’t tend to worry about these things until they're too big to ignore. Then come the higher taxes and the reduced government spending, but, by then, the unfortunate timing ends up hurting the economy.","bcd9d248-a140-45e5-9f63-7ba217ab4f67",[1620,1628],{"id":1621,"data":1622,"type":59,"version":25,"maxContentLevel":36},"114a27e2-aa58-48f5-aa04-40d218189556",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1623,"clozeWords":1625},[1624],"In times of surplus, the government should reduce debt to a healthy level",[1626,1627],"surplus","debt",{"id":1629,"data":1630,"type":59,"version":25,"maxContentLevel":36},"2ce14527-bff2-43ab-a04f-3febd5d6598f",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1631,"multiChoiceCorrect":1633,"multiChoiceIncorrect":1635},[1632],"Who benefits from internal debt?",[1634],"The wealthy",[1636,1637,1638],"The poor","The children","The Trade Federation",{"id":1640,"data":1641,"type":25,"maxContentLevel":36,"version":28,"reviews":1645},"3a3eb3a0-87da-46ad-81f0-fea4fe460337",{"type":25,"title":1642,"contentRole":28,"markdownContent":1643,"audioMediaId":1644},"Getting the timing right","**Fiscal policy – and racking up a national debt – has its time and place**. What's crucial is recognizing when and how they can be most effective. When countries are operating at maximum, more government spending just ends up overheating the economy. This leads to a crowding out of the private sector because any gains made by the government take away resources from firms and households. Rather than fostering economic growth, it results in inflation. Once the government realizes what it has done, it may step on the brakes. Again, this sudden shift may backfire. As the market adjusts, it may enter a recession.\n\n**‘Rational expectations’ are another limitation of fiscal policy**. When the public expects government spending to ramp up, they anticipate inflation. In doing so, workers demand higher wages, and businesses hike prices. Output stays the same, but prices have gone up. In the end, the extra government spending will have achieved nothing. These types of scenarios make a strong case for automatic stabilizers, as they are timely and targeted.","237e5760-085e-4205-bd3d-86b366ae7da0",[1646],{"id":1647,"data":1648,"type":59,"version":25,"maxContentLevel":36},"b4abb7a3-5450-4eba-bf66-96b4261212ae",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1649,"clozeWords":1651},[1650],"Rational expectations can undermine fiscal policy because workers anticipate inflation",[1652],"Rational",{"id":1654,"data":1655,"type":29,"maxContentLevel":36,"version":36,"orbs":1658},"0f6f0fd5-cc61-463f-b4e9-6c04f7b005b0",{"type":29,"title":1656,"tagline":1657},"A Lever on Money Supply","What does the Federal Reserve do? Learn about monetary policy and the role of ‘The Fed.’",[1659,1736,1797],{"id":1660,"data":1661,"type":28,"version":28,"maxContentLevel":36,"pages":1663},"a2707a3c-a200-410a-8e88-bab11a0a567c",{"type":28,"title":1662},"The Role of Central Banks",[1664,1688,1702],{"id":1665,"data":1666,"type":25,"maxContentLevel":36,"version":28,"reviews":1670},"0335cd01-cfd1-4015-9ead-01e1c064833c",{"type":25,"title":1667,"contentRole":28,"markdownContent":1668,"audioMediaId":1669},"One bank to rule them all","**Central banks** are one of the most powerful institutions in a country. They **regulate commercial banks** and **control money supply** to ensure a healthy rate of economic growth. With this in mind, central banks **keep unemployment low, control inflation, and work toward moderate long-term interest rates**. Notice how these objectives seek a balance between an economy on overdrive and one that’s hibernating – moderation is key.\n\nDifferent countries have different names for their central banks – the Federal Reserve in the US (or the Fed, for short), European Central Bank in the EU, and Bank of Canada in Canada. In any case, they are national authorities which are largely independent to protect them from political pressures. Among the powers and responsibilities of a central bank are the ability to create money, to change interest rates, and to step in should financial institutions collapse. And, with an ever-more globalized world, keeping a country’s currency stable has become an important duty as well.\n\n![Graph](image://7bc79849-7aba-49ae-a0ca-eb9d59ac02fd \"Bank of Canada Facade. Image: 方畢可, CC0, via Wikimedia Commons\")","2b1c2f2e-df8d-4d0f-87a6-721c56725825",[1671,1679],{"id":1672,"data":1673,"type":59,"version":25,"maxContentLevel":36},"602d20e9-d31b-4140-9d14-9e5149f8c599",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1674,"clozeWords":1676},[1675],"Central banks regulate commercial banks and control the supply of money",[1677,1678],"regulate","supply",{"id":1680,"data":1681,"type":59,"version":25,"maxContentLevel":36},"8bc17c13-fbaf-4c06-829c-8ac5515929fe",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1682,"activeRecallAnswers":1684},[1683],"What are the three aims of a central bank?",[1685,1686,1687],"Keep unemployment low","Control inflation","Work towards moderate long-term interest rates",{"id":1689,"data":1690,"type":25,"maxContentLevel":36,"version":28,"reviews":1694},"7300c355-b351-4ed7-805a-3fd2a7141ad6",{"type":25,"title":1691,"contentRole":28,"markdownContent":1692,"audioMediaId":1693},"The lender of last resort","**Financial institutions run on trust** – that our money is safe in the bank, and that we can retrieve it anytime. Unfortunately, that trust is shaky. If someone tells you your bank is going broke, what would you do? Run straight to the bank and withdraw your money before everyone else does the same and the bank goes bust? Once word gets out, the rumor becomes a self-fulfilling prophecy. Enough people will panic like you, and the bank inevitably runs out of cash.\n\nBut that doesn't mean that the bank has lost depositors’ money. It just means that banks don’t keep 100% of depositors’ cash in their vaults because that’s how banks profit – by lending out excess funds.\n\n![Graph](image://6dfeebe9-f036-46ad-a8fe-639c6b07ff5c \"Ban run on a brand of Northern Rock in Glasgow, UK. Image: David MacKay, CC BY-SA 2.0 \u003Chttps://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons\")\n\n**Bank runs are less common nowadays**. Thanks to deposit insurance, depositors’ funds are safe regardless of a bank’s cash situation. When all else fails, the Fed can step in as a lender of last resort, propping up banks to avoid a domino effect across the financial system. This happened in 2008, when the US banking system almost collapsed due to the housing crisis.","f5158f4b-112e-46f6-885c-722002634377",[1695],{"id":1696,"data":1697,"type":59,"version":25,"maxContentLevel":36},"5f1c61cc-59e7-4bcc-b635-666feb58a5f0",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1698,"clozeWords":1700},[1699],"Banks lend out excess funds in order to make a profit",[1701],"lend out",{"id":1703,"data":1704,"type":25,"maxContentLevel":36,"version":28,"reviews":1708},"69a4e9f8-b603-4760-bb37-8b8f9697fc54",{"type":25,"title":1705,"contentRole":28,"markdownContent":1706,"audioMediaId":1707},"Controlling the multiplication of money","Banks earn money by loaning out depositors’ cash, keeping only a fraction of all deposits to account for possible withdrawals. Imagine depositing $1000 in a bank. The bank keeps $100 and loans out $900 to Rita. Rita takes the $900, deposits it elsewhere. Her bank keeps $90 and loans out $810 to Janet. Janet takes the $810, deposits it in another bank… and on it goes. From your initial $1000, banks can create up to $10,000 worth of new money.\n\n![Graph](image://80e3dd2c-0f95-4798-a5a1-ad04e5a1b412 \"A pile of dollar notes. Image: Tracy O, CC BY-SA 2.0 \u003Chttps://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons\")\n\n**It’s with this concept of fractional reserve banking that central banks control money supply**. Notice how banks keep a constant 10% of deposits in the example? It’s not because they want to. They're required by law. We call this the reserve requirement, and the Fed moves it up or down as needed.\n\n**If there’s too much money around, the Fed raises the reserve requirement**. Banks must retain more of depositors’ cash, so money supply decreases. If the market needs stimulation, the Fed lowers the reserve requirement, hoping to make money more available to consumers to borrow and spend.","02a2a11c-e3bd-49ff-8ec0-b4ff2ed2b71b",[1709,1716,1727],{"id":1710,"data":1711,"type":59,"version":25,"maxContentLevel":36},"4a410bdb-89c5-45ce-bf34-fbbe720c9b1d",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1712,"activeRecallAnswers":1714},[1713],"What is the amount of money the central bank requires commercial banks to keep to hand called?",[1715],"The reserve requirement",{"id":1717,"data":1718,"type":59,"version":25,"maxContentLevel":36},"dbe31351-2c48-4e79-8990-e258a76bc280",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1719,"multiChoiceCorrect":1721,"multiChoiceIncorrect":1723},[1720],"What percentage of money do banks have to keep to hand?",[1722],"10%",[1724,1725,1726],"21%","45%","98%",{"id":1728,"data":1729,"type":59,"version":25,"maxContentLevel":36},"eaec012f-c706-40c0-af61-66d273e3b4d6",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1730,"binaryCorrect":1732,"binaryIncorrect":1734},[1731],"What happens to the reserve requirement if there is too much money around?",[1733],"Raised",[1735],"Lower",{"id":1737,"data":1738,"type":28,"version":36,"maxContentLevel":36,"pages":1740},"4f0ba31b-22b1-4aef-9517-69c30a941315",{"type":28,"title":1739},"Monetary Policy Tools",[1741,1755,1779],{"id":1742,"data":1743,"type":25,"maxContentLevel":36,"version":36,"reviews":1747},"e4adbabb-994d-4ac4-8d1e-ba42d324cd72",{"type":25,"title":1744,"contentRole":28,"markdownContent":1745,"audioMediaId":1746},"Playing with discount rates","Remember that **the Fed imposes a reserve requirement on banks**. When banks fall short and need extra funds, they can turn to the Fed, which loans them money at an interest rate. We call this the discount rate, and it is the second of 3 traditional tools that central banks use to manage the economy.\n\n![Graph](image://f634f008-6171-4358-accd-f9ba681f4ef9 \"The Eccles building, US central bank. Image: AgnosticPreachersKid, CC BY-SA 3.0 \u003Chttps://creativecommons.org/licenses/by-sa/3.0>, via Wikimedia Commons\")\n\nWhen the discount rate is low, banks are incentivized to issue more loans and make up for their reserve shortfall by borrowing from the Fed. If a bank can issue a 5% loan while borrowing from the Fed at 0.25%, the 4.75% difference is a good profit incentive. Banks might react to this low discount rate by issuing more loans, thereby increasing the economy’s money supply.\n\nIn contrast, **when the discount rate is high, banks’ profit margins on loans become smaller**. This discourages them from borrowing from the Fed, which then reduces the volume of loans they issue. By moving the discount rate up or down, the Fed can influence banks’ loaning behavior and, by extension, the economy’s money supply.","e9807590-f50d-49c1-b70a-74167d85d295",[1748],{"id":1749,"data":1750,"type":59,"version":25,"maxContentLevel":36},"b356bef7-22c7-414e-a434-f647dec8fd99",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1751,"activeRecallAnswers":1753},[1752],"What is the rate the central bank loans money to commercial banks called?",[1754],"Discount Rates",{"id":1756,"data":1757,"type":25,"maxContentLevel":36,"version":36,"reviews":1761},"98bf3801-0ed7-44bd-bf23-28ce235a54cd",{"type":25,"title":1758,"contentRole":28,"markdownContent":1759,"audioMediaId":1760},"Short-term debt and the quantity of money","**Among the Fed’s most used tools is open market operations**. Here, the Fed buys and sells short-term government debt to banks in order to adjust money supply and interest rates. **By selling government bonds, the Fed receives money from banks**, which limits the economy’s money supply. We call this **contractionary monetary policy**. The Fed can also go the opposite direction and buy back government bonds, thus releasing extra money into the market – an expansionary monetary policy.\n\n![Graph](image://74243b82-53e6-49ee-912c-2d1c51127166 \"American economist, Irving Fisher. Image: Bain News Service, Public domain, via Wikimedia Commons\")\n\nThis focus on money supply and interest rates has its foundations in **Irving Fisher’s Quantity Theory of Money**. Fisher suggests that any change in money supply creates an equivalent change in price levels:\n\n**money supply × velocity of money = general price of goods × volume of transactions in the economy**\n\n**Velocity of money**, which is how fast money changes hands in an economy, can play an influential role too. Are people spending enthusiastically, or are they holding tight to their funds? The former amplifies any changes in money supply, while the latter dampens it.\n\nThis formula has since been debated, adapted, and modified. Economists still argue about its specifics, but what we can take from this is that money supply usually has a direct effect on inflation and is, therefore, a good tool for controlling it.","dbcf242a-029e-4174-bf6c-8ce8d0d907a2",[1762,1770],{"id":1763,"data":1764,"type":59,"version":25,"maxContentLevel":36},"4641c9e1-cafc-4cbb-8718-5ed535bf5932",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1765,"clozeWords":1767},[1766],"According to Irving Fisher's Quantity Theory of Money, money supply multiplied by velocity of money is equal to the price of goods multiplied by the volume of transactions in the economy",[1678,1768,773,1769],"velocity","transactions",{"id":1771,"data":1772,"type":59,"version":25,"maxContentLevel":36},"acf41213-869c-4aee-a2d8-2722631723d6",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1773,"activeRecallAnswers":1775},[1774],"What are the three short-term mechanisms available to a central bank?",[1776,1777,1778],"Reserve requirements","Discount rates","Open market operations",{"id":1780,"data":1781,"type":25,"maxContentLevel":36,"version":36,"reviews":1785},"924efd68-c78b-43ab-a70b-a3b1d37ff92d",{"type":25,"title":1782,"contentRole":28,"markdownContent":1783,"audioMediaId":1784},"A new frontier for monetary policy","The 2008 financial crisis was so dire that the Fed lowered discount rates to zero to encourage spending. But, even at that point, the Fed’s traditional expansionary measures failed to revive the economy. It had to look for other tools.\n\nEnter **quantitative easing**. Instead of just buying short-term government bonds, the Fed started purchasing longer-term assets. This allowed it to influence both in the short term and longer term. The Fed also gained the ability to target certain industries. By buying mortgage instruments, it could help lower interest rates, specifically for homebuyers.\n\nAs a result of quantitative easing, the Fed effectively funneled large swaths of cash into bank reserves. On top of that, it started paying interest on bank reserves. This encouraged banks to keep a fat cushion of cash that they would have otherwise eagerly loaned out pre-2008. In fact, bank reserves have never looked the same since then. Some economists fear what might happen should banks start loaning out their large reserves, imagining unprecedented levels of inflation. Banks have yet to do so, and economists are keeping a close watch.\n\n![Graph](image://f08ff7f8-99cc-4709-9847-4ca5b77e1791 \"Federal Reserve Bank of New York Vault Door. Image: Canton Viaduct, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")","9c602de5-165c-4074-b292-829ff54d1022",[1786],{"id":1787,"data":1788,"type":59,"version":25,"maxContentLevel":36},"bb1742e1-fd11-4522-aad7-e8de441ad6ce",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1789,"multiChoiceCorrect":1791,"multiChoiceIncorrect":1793},[1790],"What tool did the Fed use to mitigate the impacts of the 2008 financial crisis?",[1792],"Quantitative easing",[1794,1795,1796],"Raising business rates","Lowering reserve requirements","Quantitative tightening",{"id":1798,"data":1799,"type":28,"version":28,"maxContentLevel":36,"pages":1801},"5e19d9b2-3056-4154-9c71-47d6c15d6787",{"type":28,"title":1800},"Challenges and Innovations in Monetary Policy",[1802,1816,1839],{"id":1803,"data":1804,"type":25,"maxContentLevel":36,"version":28,"reviews":1808},"286af1a1-2ffb-49e7-938f-7a85dabae0e3",{"type":25,"title":1805,"contentRole":28,"markdownContent":1806,"audioMediaId":1807},"Powerful but not almighty","The 2008 financial crisis revealed the limits of the Fed’s toolkit. Efforts to jumpstart an economy in crisis only go so far when interest rates are already at rock bottom. That's why the Fed resorted to unconventional measures like quantitative easing and paying interest on bank reserves.\n\n![Graph](image://68a48b48-2128-424f-99ef-fc7bc0e688a0 \"A meeting at the Federal Reserve Board, 2023. Image: Federalreserve, Public domain, via Wikimedia Commons\")\n\nBut sometimes the challenge is in even deciding what to do. The Fed must address realities on the ground, but it doesn't always have a clear or full picture of something as complex as the US economy. Economists can have different takes on a situation, and they can all be correct. It’s just that none of them has a full view, and they all come from different angles.\n\nThe early signs of inflation, for example, may be interpreted as a spike in demand. To keep things in check, authorities may reduce money supply. However, time may paint a different picture. Perhaps increased costs in the supply chain led to cost-push inflation. In hindsight, the Fed knows what it should have done, but the solution isn’t always obvious while things are still unfolding.","d61b042b-28a1-4277-9bbc-bd6a362a70d9",[1809],{"id":1810,"data":1811,"type":59,"version":25,"maxContentLevel":36},"878ed979-d723-4e54-abb6-6b3e34f3391a",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1812,"clozeWords":1814},[1813],"The early signs of inflation are easy to confuse with a spike in demand",[1815],"demand",{"id":1817,"data":1818,"type":25,"maxContentLevel":36,"version":28,"reviews":1822},"953079cb-66a2-4556-88ea-7312cc83c842",{"type":25,"title":1819,"contentRole":28,"markdownContent":1820,"audioMediaId":1821},"Cooperation, not competition","Humans enjoy comparing things. Fiscal and monetary policy are not immune to this sort of comparison. Fiscal policy generally has a more direct impact on consumers in the form of new jobs and direct payments from the government. But **discretionary fiscal policy involves significant legislative and implementation delays**. Help does not always come fast enough.\n\nAnother thing to note is that fiscal policy lies in the hands of politicians who may or may not be as well-versed in economic policy compared to members of the Fed. But that’s not to say that the Fed has never messed up. Even Ben Bernanke, former chair of the Fed, admitted that the Great Depression was worsened by the institution’s policies.\n\n![Graph](image://28fd1d7b-1127-40af-9e8f-6176db540872 \"US Economist, Ben Bernanke. Image: Medill DC, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\n**Monetary policy offers relatively quick action from experts whose sole job is to monitor the health of the economy**. **Fiscal policy, meanwhile, has more impact on citizens, and is more effective during severe economic downturns**. Ultimately, both have their roles to play, and an economy that uses both wisely is better equipped for growth and stability.","f8249576-55f3-4253-9bbd-5d6dddbf6f6e",[1823,1831],{"id":1824,"data":1825,"type":59,"version":25,"maxContentLevel":36},"2027e69f-6ce5-470e-bdd7-5ac141110cb5",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1826,"clozeWords":1828},[1827],"Fiscal policy offers relatively slow action from politicians whose job involves considering wider impacts on citizens",[1829,1830],"slow","politicians",{"id":1832,"data":1833,"type":59,"version":25,"maxContentLevel":36},"9067179f-ab45-4d99-9d8d-017a4b6061cb",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1834,"clozeWords":1836},[1835],"Monetary policy offers relatively quick action from experts whose sole job is to monitor the health of the economy",[1837,1838],"quick","experts",{"id":1840,"data":1841,"type":25,"maxContentLevel":36,"version":28,"reviews":1845},"fb281623-c7ab-4de9-8f09-e3066f60a77f",{"type":25,"title":1842,"contentRole":28,"markdownContent":1843,"audioMediaId":1844},"Does the Fed affect you?","The Fed works closely with financial institutions, but do their tools actually affect consumers? Of course, society as a whole experiences the flow-on effects of a healthy economy. But besides that, the ripples of the Fed’s policies do reach consumers, primarily in the form of interest rates.\n\nWhen the Fed tweaks interest rates, this will reflect in the rates we get charged on our credit cards, auto loans, and mortgage payments. For instance, someone looking to buy a house needs to prepare a bigger budget for buying into the market as interest rates are going up.\n\n**Higher interest rates also mean higher interest on government bonds and savings accounts** – assuming you partake in either. Stock investors may observe the stock market being shaky for some time, but the market adjusts eventually, so there’s no cause for panic.\n\nAll in all, the Fed’s policies, whether expansionary or contractionary, will affect you. How it does depends on where you stand financially. Are you more of a borrower or a lender? What ends up being favorable for one will inevitably hurt the other.","442de4ca-5f27-47bb-9273-67073bdcf2dd",[1846],{"id":1847,"data":1848,"type":59,"version":25,"maxContentLevel":36},"afc3c6bd-c3cf-41d4-ad15-a69a30c1b3de",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1849,"binaryCorrect":1851,"binaryIncorrect":1853},[1850],"Do the central bank's interest policies impact consumers?",[1852],"Yes, interest rate changes affect loans and savings",[1854],"No, it only affects other financial institutions",{"id":1856,"data":1857,"type":29,"maxContentLevel":36,"version":28,"orbs":1860},"0167d5a6-3f38-4e28-b97f-239eebf4280a",{"type":29,"title":1858,"tagline":1859},"Free Trade, the Good and the Bad","Why free trade can be good for an economy, and a brief explanation of its potential undesirable unintended consequences",[1861,1975,2053],{"id":1862,"data":1863,"type":28,"version":28,"maxContentLevel":36,"pages":1865},"97d3d8a6-4216-496c-b399-2e992300d121",{"type":28,"title":1864},"Comparative Advantage and Productivity",[1866,1890,1904,1928,1949],{"id":1867,"data":1868,"type":25,"maxContentLevel":36,"version":25,"reviews":1872},"e3a67dba-92f2-4582-9ef6-48f72407eefb",{"type":25,"title":1869,"contentRole":28,"markdownContent":1870,"audioMediaId":1871},"Comparing productivity","To raise funds for concert tickets, 2 friends offer car-washing and lawn mowing services. Dave happens to be a very efficient worker. He can wash twice as many cars and mow 1.5 times as many lawns as Richard, as below.\n\n ![Graph](image://09d3c4c9-41de-43b8-a268-d7af852c9993 \"Comparing Productivity for Dave and Richard\")\n\n\nTo maximize productivity, how should the boys split their work? Richard slept through macroeconomics, so he suggests Dave do all the work since he’s faster at both anyway – typical Richard. \n\nBut Dave remembers what **David Ricardo**, the British economist, said about comparative advantage. Dave argues that, although he has an absolute advantage on both tasks – he’s faster at both – he’s constrained by time. Every minute washing cars is a minute not mowing lawns, and vice versa. Dave draws up a table showing the opportunity cost, which is how much he loses by not spending his time efficiently.\n\nTo wash a car, Dave gives up mowing 0.38 lawns (1.5 lawns for every 4 cars) versus Richard’s 0.5. Dave has comparative advantage, so he should wash cars. Meanwhile, Richard has comparative advantage over Dave at mowing lawns. He should do it because it only costs him 2 car washes when it costs Dave 2.67.\n\n ![Graph](image://9ef7c4fd-347a-4036-aae0-ab29d71fccc7 \"Comparative Advantage for Dave and Richard\")\n\n","b87801f4-3349-41a4-b64a-631ed48d0183",[1873,1883],{"id":1874,"data":1875,"type":59,"version":25,"maxContentLevel":36},"299f643a-f06d-49a8-9fe5-3e6051ca5e53",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1876,"multiChoiceCorrect":1878,"multiChoiceIncorrect":1880},[1877],"Who developed the theory of comparative advantage?",[1879],"David Ricardo",[1474,1881,1882],"Robert Solow","Milton Friedman",{"id":1884,"data":1885,"type":59,"version":25,"maxContentLevel":36},"b52d4a22-f8c1-49fa-9b0e-4db90610c0b3",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1886,"activeRecallAnswers":1888},[1887],"What is comparative advantage?",[1889],"Comparative advantage is the theory that one person might be able to carry out a task more efficiently than another",{"id":1891,"data":1892,"type":25,"maxContentLevel":36,"version":25,"reviews":1896},"2fd2fafb-6725-4816-b78d-9307e58122bb",{"type":25,"title":1893,"contentRole":28,"markdownContent":1894,"audioMediaId":1895},"My wood for your sheep","The concept of **comparative advantage** explains why free trade is a good thing. Producing stuff costs. Besides the raw material and labor involved with manufacturing goods, there’s opportunity cost too – every time an economy decides to produce something, it gives up the opportunity to produce something else. Countries should specialize in goods and services where their opportunity cost is lower compared to other nations. \n\nLet’s look at strawberries and crude oil. South Korea exports the former, and Saudi Arabia the latter. If Saudi Arabia wants strawberries, it should just import from South Korea instead of struggling – and failing – to cultivate the fruit. Otherwise, it may end up diverting resources that will be more productive at extracting crude oil into an impossible task. By engaging in trade, both South Korea and Saudi Arabia benefit. They satisfy their wants and needs at minimal cost.\n\n**The benefits of trade apply to goods and services that aren’t impossible for an economy to produce**. The Philippines is heavily agricultural, but it also imports rice from countries with a comparative advantage in rice production. This provides the Philippine market with additional variety as well as cheaper options.\n","a5112b35-eea7-4ec4-96fd-0a6131cb3c53",[1897],{"id":1898,"data":1899,"type":59,"version":25,"maxContentLevel":36},"af11e48f-35e5-4380-abf7-0793c5731258",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1900,"clozeWords":1902},[1901],"In what is known as the opportunity cost, every time an economy decides to produce a good, it gives up the opportunity to produce another",[1903],"opportunity cost",{"id":1905,"data":1906,"type":25,"maxContentLevel":36,"version":28,"reviews":1910},"51dc57bd-fdef-4835-b510-1d4c56584bf0",{"type":25,"title":1907,"contentRole":28,"markdownContent":1908,"audioMediaId":1909},"Use it to your (comparative) advantage","Where and how do economies gain comparative advantage in producing goods and services? When it comes to producing something like fruit or oil, some countries are naturally good, given their geography and climate. Russia can’t specialize in tropical fruits, but it’s a top producer of vodka, thanks in part to its harsh, cold weather.\n\n![Graph](image://7034a2d7-97b1-4cec-8224-68419a79bc00 \"Kristall vodka factory, Moscow, Russia. Image: Sergey Ashmarin, CC BY-SA 3.0 \u003Chttps://creativecommons.org/licenses/by-sa/3.0>, via Wikimedia Commons\")\n\n**Another reason why some countries can specialize in certain goods and services is the makeup of their resources**. China’s large population makes it conducive to manufacturing, especially in labor-intensive industries. Meanwhile, India, with an equally large population, has a labor force fluent in English and trained in IT, hence why so many companies outsource remote customer service there. Western nations can rely on India’s fairly educated English-speaking population to provide support services like customer care and business processing. China doesn’t have as many English speakers, so it doesn't attract call centers.\n\n![Graph](image://231bc65e-e3f0-4dad-85b7-e32666f6243f \"Call center in Dantewada, India. Image: Samuel.Wsx, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nIn addition, countries can gain comparative advantage by virtue of their institutions. For example, Singapore is a global financial hub because it has good banking structures and a stable political and financial ecosystem.","859096cc-17fd-4aee-83c7-cc9df40861c9",[1911,1921],{"id":1912,"data":1913,"type":59,"version":25,"maxContentLevel":36},"8d59ce4e-8ae6-4786-8d4d-fc2eb54a4716",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":1914,"activeRecallAnswers":1916},[1915],"What four factors impact national comparative advantage?",[1917,1918,1919,1920],"Geography","Climate","Resources","Institutions",{"id":1922,"data":1923,"type":59,"version":25,"maxContentLevel":36},"dae4a846-7256-4b48-9fb0-872fe92fadf3",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1924,"clozeWords":1926},[1925],"One example of institutional comparative advantage is how Singapore is a global financial hub",[1927],"Singapore",{"id":1929,"data":1930,"type":25,"maxContentLevel":36,"version":28,"reviews":1934},"94a54d02-f8fe-4262-ac8a-3806e4d203aa",{"type":25,"title":1931,"contentRole":28,"markdownContent":1932,"audioMediaId":1933},"Does free trade kill jobs?","In 2016, then-presidential candidate Donald Trump said, “My plan includes a pledge to restore manufacturing in the United States.” In countries like the US, where manufacturing used to account for 32% of jobs, it's all too easy to grieve for the past and blame free trade for the nation’s ills. That imported goods cost jobs is a common remark we hear. But is it true?\n\n![Graph](image://e16c317c-1c1c-4e6a-b443-c31ae8f91965 \"Presidential candidate Donald Trump at a supporter rally in Iowa, 2016. Image: Evan Guest, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\nCheap imports can take away jobs, but the issue is complex. With the money you save from buying imported goods, you might eat at a neighborhood café or get a haircut at the salon. Whatever you save benefits your local economy. When you get to have your cheap imported goods and a nice meal at the café, don’t you get to enjoy more without spending more?\n\n**Free trade can threaten domestic jobs, but, on an aggregate level, the economy is better off**. When local industry is under threat by foreign competition, businesses need to find a way to stay competitive. Otherwise, their workers suffer.","c4d75d11-4e85-4d80-8cf5-15267f6c8799",[1935,1942],{"id":1936,"data":1937,"type":59,"version":25,"maxContentLevel":36},"94f61344-c084-42b8-8814-d4547832691c",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1938,"binaryCorrect":1940,"binaryIncorrect":1941},[1939],"Free trade threatens jobs. But on an aggregate level, is the economy worse off?",[430],[432],{"id":1943,"data":1944,"type":59,"version":25,"maxContentLevel":36},"ca3ff624-8678-4c94-a7ee-4d4f0adb3e5b",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":1945,"binaryCorrect":1947,"binaryIncorrect":1948},[1946],"Can cheap imports take away jobs?",[432],[430],{"id":1950,"data":1951,"type":25,"maxContentLevel":36,"version":25,"reviews":1955},"935c8a7a-885a-44d8-a4c0-99671bdafa98",{"type":25,"title":1952,"contentRole":28,"markdownContent":1953,"audioMediaId":1954},"Economies of scale","Why do countries with comparable economic profiles trade with each other? Intra-industry trade, the trade of goods within the same industry, allows countries to achieve economies of scale. Producing at higher volumes lowers per-unit cost by spreading fixed costs like tools, equipment, and research across a larger production quantity. **This concept is known as ‘economies of scale.’**\n\nTo produce a chair, for example, you’d need a saw, some glue, and wood. Glue is sold by the pail, so making 1 chair leaves you half a pail of glue extra. What if you decided to produce 10 chairs? You’d have to buy 10 times as much wood and 5 times as many pails of glue, but the saw you have is enough to complete the job. This brings costs down somewhat. You waste half a pail of glue less, and you distribute the cost of 1 saw across 10 chairs.\n\nFinally, imagine producing 100 chairs. At that volume, you can negotiate with your supplier for bulk pricing to bring your per-unit cost of wood and glue down. And as you continue to make more chairs, you build on your expertise, finding faster, better ways to produce.\n","ec9c26ab-53c3-4152-97e6-2218dbcc0573",[1956,1966],{"id":1957,"data":1958,"type":59,"version":25,"maxContentLevel":36},"5faca13f-6b18-49e0-a608-0965046e47b7",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":1959,"multiChoiceCorrect":1961,"multiChoiceIncorrect":1963},[1960],"The concept that producing larger quantities is cheaper is called...",[1962],"economies of scale",[1048,1964,1965],"aggregate efficiency","comparative advantage",{"id":1967,"data":1968,"type":59,"version":25,"maxContentLevel":36},"ff442359-dd61-4f9e-b8e8-0041082e4150",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1969,"clozeWords":1971},[1970],"Producing at higher volumes decreases per-unit cost by spreading fixed costs like tools, equipment, and research across a larger production quantity",[1972,1973,1974],"decreases","fixed costs","larger",{"id":1976,"data":1977,"type":28,"version":28,"maxContentLevel":36,"pages":1979},"5881b868-e98c-41c7-bad9-3e1d20e40068",{"type":28,"title":1978},"The Benefits of Trade and Specialization",[1980,2001,2017],{"id":1981,"data":1982,"type":25,"maxContentLevel":36,"version":28,"reviews":1986},"3333f578-92c5-4cba-8173-4d9eddc2272c",{"type":25,"title":1983,"contentRole":28,"markdownContent":1984,"audioMediaId":1985},"By your powers combined","Imagine 2 countries cooperating on the production of an aircraft model. By splitting the whole into portions, workers in each economy can become specialists of their specific part, building deeper knowledge and honing their skills. Instead of having to spread themselves thin building a wide knowledge base on different aspects of production, they can have a laser focus on their respective specialties. By working together, **countries enjoy economic gains they won’t otherwise achieve by going it alone**.\n\n![Graph](image://7c0e5d8c-459f-48f2-afb7-81ed9dfe59f0 \"Engineers assemble an aircraft. Image: André Gerwing, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nTrade also allows economies to have a variety of goods. For example, a country produces 500 units of a car model. If it wants to produce 2 models, it can only produce 150 units of each. With the same input level, its output decreases. Alternatively, it can find another country in a similar situation. Each country can produce 500 units each of both models, then swap half with each other. **This way, efficiency is maintained, but consumers have more options.**","1738eff8-cca9-463a-b86f-61311a38629a",[1987,1994],{"id":1988,"data":1989,"type":59,"version":25,"maxContentLevel":36},"6ec71745-8948-44ec-8764-3390b5f7495e",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1990,"clozeWords":1992},[1991],"Trade allows economies to have a wider variety of goods",[1993],"variety",{"id":1995,"data":1996,"type":59,"version":25,"maxContentLevel":36},"927db203-7109-47d2-8211-9b3fc67514e7",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":1997,"clozeWords":1999},[1998],"Sharing production burdens across multiple regions or nations allows workers to specialize more easily",[2000],"specialize",{"id":2002,"data":2003,"type":25,"maxContentLevel":36,"version":28,"reviews":2007},"90649540-5c2a-4974-b818-81bab0a78b93",{"type":25,"title":2004,"contentRole":28,"markdownContent":2005,"audioMediaId":2006},"The dark side of free trade","Trade and globalization have opened doors for businesses, **though some doors lead to less desirable consequences.** Large corporations maximize profit using cheap labor in lower-income countries. These countries often have weaker regulations. Laborers work in unsafe environments handling dangerous chemicals with long hours and little pay.\n\n![Graph](image://82f06315-6aa4-4dcb-b3f6-57a9967e0266 \"Busy garments factory in Bangladesh. Image: Fahad Faisal, CC BY-SA 3.0 \u003Chttps://creativecommons.org/licenses/by-sa/3.0>, via Wikimedia Commons\")\n\nThese outsourcing practices benefit consumers in developed countries, who are sometimes unaware or unconcerned about the plight of factory workers in countries like Bangladesh. Critics may condemn these practices as exploitative and oppressive, but workers tolerate harsh conditions, believing sweatshop work will save them from poverty. Whether these practices lead to more harm than good is a contentious topic and subject to debate.\n\nPerhaps there is less room for discussion with forced labor and child labor. Yet they are still realities in some parts of the world. For now, consumers must decide where they draw the line. Do they really want to know about the origins of their cheap clothes and electronics? To this end, the idea of ‘ethical consumerism’ has gained ground in recent years.\n\n![Graph](image://463b8e2a-8280-4694-abdf-9b977d7095fe \"Child labour in a ceramic factory. Image: Judas Priest88, Public domain, via Wikimedia Commons\")","8faba560-2018-424e-b675-c460f1e0dbd8",[2008],{"id":2009,"data":2010,"type":59,"version":25,"maxContentLevel":36},"0daec6c4-c982-426b-a4fe-9fdf9b6ef6f9",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":2011,"binaryCorrect":2013,"binaryIncorrect":2015},[2012],"What benefits from free trade?",[2014],"Prices in developed nations",[2016],"Working conditions in developing nations",{"id":2018,"data":2019,"type":25,"maxContentLevel":36,"version":28,"reviews":2023},"a32182a3-28a8-4c75-a6c4-cba8abed4abc",{"type":25,"title":2020,"contentRole":28,"markdownContent":2021,"audioMediaId":2022},"Who benefits from protectionism?","When people focus on the job loss and reshuffling that result from international trade, **nationalistic sentiments pave way for protectionist practices**. Tariffs are taxes slapped onto imported goods and services, ‘protecting’ local industry by raising prices on imported goods. Although local producers benefit, consumers suffer due to higher prices.\n\n![Graph](image://f2e1516c-a1bd-4f53-8e72-16d0816a0a40 \"Automotive assembly line in Beilun, China. Image: Siyuwj, CC BY-SA 3.0 \u003Chttps://creativecommons.org/licenses/by-sa/3.0>, via Wikimedia Commons\")\n\nAlternatively, a country may set import quotas, a cap on how much of any specific good can be imported into the country, like only allowing 3 million Chinese car imports annually. Finally, governments may direct their attention inward and, instead, grant subsidies or tax cuts to local producers, thus lowering the cost of domestic goods. Subsidies are common in agriculture, oil, housing, and healthcare since these are crucial to citizens’ welfare.\n\n**Protectionism may benefit some players within the economy, but, on the whole, society is worse off for it**. Less competition reduces quality and innovation and ultimately slows economic growth. But protectionism has its advantages. Countries don’t want to be reliant on other nations for key goods, as trade can be used as a bargaining chip for political issues. **A degree of independence helps insulate a country’s economy from external shocks.**","17efa869-0ea6-4cbe-99ea-e65ee4e9a019",[2024,2032,2039,2046],{"id":2025,"data":2026,"type":59,"version":25,"maxContentLevel":36},"0df69a1a-1759-419d-835e-216c4f2d3888",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2027,"clozeWords":2029},[2028],"Protectionism is when free trade is restricted through the use of tariffs",[2030,2031],"protectionism","tariffs",{"id":2033,"data":2034,"type":59,"version":25,"maxContentLevel":36},"292588a5-e96f-45f5-bd11-7894ff6c827e",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":2035,"activeRecallAnswers":2037},[2036],"What is a tariff?",[2038],"A tax on imported goods and services",{"id":2040,"data":2041,"type":59,"version":25,"maxContentLevel":36},"8e31775a-71bf-4e8d-982e-839ab54f5b5f",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2042,"clozeWords":2044},[2043],"While protectionism may benefit some players within the economy, on the whole, society is worse off",[2045],"worse",{"id":2047,"data":2048,"type":59,"version":25,"maxContentLevel":36},"f2dcab08-f12a-4753-9ecd-a918047c3a80",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2049,"clozeWords":2051},[2050],"Subsidies are one alternative to tariffs to protect local trade",[2052],"Subsidies",{"id":2054,"data":2055,"type":28,"version":28,"maxContentLevel":36,"pages":2057},"9b27ebb7-a77d-4e2d-8d07-6a7baf84b5c5",{"type":28,"title":2056},"The Impact of Currency and Exchange Rates",[2058,2081],{"id":2059,"data":2060,"type":25,"maxContentLevel":36,"version":28,"reviews":2064},"4223acca-664f-4808-8b6e-b3cfc848055e",{"type":25,"title":2061,"contentRole":28,"markdownContent":2062,"audioMediaId":2063},"Currency exchanges and their impact on free trade","**Exchange rates – the price of one currency expressed in another country’s currency – are crucial in international trade.** Most currencies’ values fluctuate constantly, adjusting to demand and supply. In the foreign exchange market, demand for a currency – let’s say the US dollar – comes from foreigners wanting to invest in the US, tourists who want to buy American goods, and American companies seeking to swap their foreign earnings into US dollars.\n\n![Graph](image://183d00b0-359b-4e6c-b00c-64c7f13e7b88 \"US dollar bill. Image: ESEMES, Public domain, via Wikimedia Commons\")\n\nIf US$ 1 was worth €1.11 Euros but is now worth €0.64, who benefits? The US dollar is weaker, so a European who needs US$ 100 gets to pay less of their currency in exchange – €64 now versus €111 before. The buyer benefits when a currency weakens.\n\nEven when you have no plans of buying or selling US dollars, its value affects you. Saudi Arabia, the world’s largest oil producer, pegs its currency to the US dollar. When the US dollar is stronger, so too is the riyal. Thus, Saudi Arabia can sell its oil at a cheaper price, making gas prices more affordable for everyone else.\n\n![Graph](image://e95c413b-63fb-4952-9faa-8d26a8640630 \"Khurais oil processing facility, Saudi Arabia. Image: Planet Labs, Inc., CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")","e61f2729-4908-4fa0-a762-2a8498bd727f",[2065,2074],{"id":2066,"data":2067,"type":59,"version":25,"maxContentLevel":36},"83116d09-9947-40fd-b99e-2b3e626ead2e",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":2068,"binaryCorrect":2070,"binaryIncorrect":2072},[2069],"Currency values fluctuate...",[2071],"frequently",[2073],"on rare occasions",{"id":2075,"data":2076,"type":59,"version":25,"maxContentLevel":36},"ca537a13-1c4a-4f70-ae44-fd4bc1ab2a18",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":2077,"binaryCorrect":2079,"binaryIncorrect":2080},[2078],"True or False: If you have no plan of buying or selling US dollars, its value doesn't affect you",[414],[416],{"id":2082,"data":2083,"type":25,"maxContentLevel":36,"version":28,"reviews":2087},"58b105e0-f485-4639-be6c-7ac149d0e543",{"type":25,"title":2084,"contentRole":28,"markdownContent":2085,"audioMediaId":2086},"Interest, inflation, and exchange rates","As a trade partner of the US, does the EU benefit from a weaker dollar? It depends on who imports more from whom. If the EU exports to the US more than it imports from the US, a weaker dollar means that Americans now have to pay more for EU goods. As the US seeks cheaper goods elsewhere, the volume of EU exports to the US may decrease. **Countries who are net exporters have an incentive to keep their currency relatively weak in order to maintain their export volume.**\n\nSeveral factors affect exchange rates. Let’s say South Korea’s interest rates go up. The high interest rates will attract foreign investment. As demand for the Korean won increases, so too does the currency’s value.\n\nBut investors need to be mindful of inflation too, as it can chip away at investors’ expected interest income. If South Korea’s nominal interest rate is at 1.75% while its inflation rate is currently 2.5%, a foreigner’s investments in Korean won loses value over time at a rate of 0.75%.\n\n![Graph](image://d1ed2cc3-e7ed-4464-8d9d-09bea8f95762 \"5000 won note. Image: The Bank of Korea한국은행, South Korean currency, via Wikimedia Commons\")","a4853c36-f7d7-4c3e-8883-1443799372c4",[2088],{"id":2089,"data":2090,"type":59,"version":25,"maxContentLevel":36},"350c275b-b023-4a06-a8df-51faab542051",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2091,"clozeWords":2093},[2092],"High interest rates typically attract foreign direct investment",[2094],"attract",{"id":2096,"data":2097,"type":29,"maxContentLevel":36,"version":28,"orbs":2100},"66fdb899-c9d7-45bb-ad44-602e9cc3c94e",{"type":29,"title":2098,"tagline":2099},"Growth Ad Infinitum","How can developed countries sustain growth? Let’s take a look at Robert Solow’s Growth Model.",[2101,2177],{"id":2102,"data":2103,"type":28,"version":28,"maxContentLevel":36,"pages":2105},"a45ba57b-378f-470b-9742-f14c3c5d3f74",{"type":28,"title":2104},"Economic Progress and Challenges",[2106,2123,2148],{"id":2107,"data":2108,"type":25,"maxContentLevel":36,"version":28,"reviews":2112},"c6ad2330-677e-476f-9b98-36b4ea419049",{"type":25,"title":2109,"contentRole":28,"markdownContent":2110,"audioMediaId":2111},"Have we progressed?","If we travel a hundred years back, 7 out of every 10 people lived in poverty. These days, we’re down to 1 in every 10. Though headlines constantly make it seem like the world is falling apart, humanity has come a long way in terms of economic growth. Living standards are much better, be it in terms of literacy, health, or democracy. We are without a doubt better off than our ancestors.\n\n![Graph](image://39f32ad3-1f24-42d9-8bab-c5f066f3ce0e \"UK Minister of Health (Neville Chamberlain) visits a slum in Newcastle, 1925. Image: Tyne & Wear Archives & Museums, No restrictions, via Wikimedia Commons\")\n\nThat said, **numbers show that countries have not grown at the same pace.** On the aggregate, we are better off. But some countries have stayed flat, like Malawi and Liberia. Worse, a few have actually had negative growth, while South Korea and Taiwan have grown more than 30-fold.\n\nThe good thing though is that **we now live in a world where we can, thanks to economic growth, share the wealth**. Whereas before, a man’s wealth was to the detriment of his neighbor, which is something we call a zero-sum economy, neighbors these days can improve their economic conditions in lockstep. But the question is, for those countries that have fallen behind, what elements are required to achieve economic growth?","406546e8-a471-4a92-90f7-8c45a20ad3ba",[2113],{"id":2114,"data":2115,"type":59,"version":25,"maxContentLevel":36},"669f76f7-ad34-46c0-950d-45511b37c76d",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":2116,"multiChoiceCorrect":2118,"multiChoiceIncorrect":2120},[2117],"How do living standards in the modern day compare to how they were 100 years ago?",[2119],"better",[2045,2121,2122],"the same","stranger",{"id":2124,"data":2125,"type":25,"maxContentLevel":36,"version":28,"reviews":2129},"3f1082ac-e6cd-49de-9d3d-035115cd3db5",{"type":25,"title":2126,"contentRole":28,"markdownContent":2127,"audioMediaId":2128},"The right ingredients","What do developing countries need to catch up to the world’s richest economies? **Factors of production are key.** Think about how books were made before the printing press. The industry relied heavily on human capital to write each word by hand. But, with the addition of physical capital – machines, equipment, buildings – processes became efficient, and labor requirements significantly reduced. But it's not enough to have laborers working all day without a clear objective in mind. Organization matters too. This is where entrepreneurs come in, to put these ingredients together and produce something of value to society.\n\n![Graph](image://fd870601-0ff6-403e-81c9-5e245a536d35 \"Old Threshers Miehle Press Drum. Image: Douglas W. Jones, CC0, via Wikimedia Commons\")\n\nOf course, businesses don’t grow out of thin air. A nation must have the right environment in place to encourage the formation of industry. In this regard, the government plays a crucial role in setting up a dependable legal system, enforcing property rights, maintaining political stability, and fostering open and competitive markets. Getting all of this in place is no easy feat; it occurs in stages. Without societal support and buy-in, the power of institutions is shaky at best.","cb441eff-f370-4139-89f4-b559ccfb4336",[2130,2138],{"id":2131,"data":2132,"type":59,"version":25,"maxContentLevel":36},"0e05c94c-97ad-4abb-be3c-c94250e056a5",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2133,"clozeWords":2135},[2134],"Factors of production are key to help developing countries catch up with the world's richest ones",[2136,2137],"production","developing",{"id":2139,"data":2140,"type":59,"version":25,"maxContentLevel":36},"e7ef9a23-6217-49b7-820f-252f0784ab49",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2141,"clozeWords":2143},[2142],"To lead to positive growth, a government in a developing country must set up a dependable legal system, enforce property rights, maintain political stability and foster open competitive markets.",[2144,2145,2146,2147],"legal","property","political","markets",{"id":2149,"data":2150,"type":25,"maxContentLevel":36,"version":28,"reviews":2154},"c4e4a4d1-e828-46a9-ad17-1d29a3c8342a",{"type":25,"title":2151,"contentRole":28,"markdownContent":2152,"audioMediaId":2153},"Achieving long-term economic growth","Economist and Nobel Laureate **Robert Solow** posited in his growth model that countries playing catch-up can grow dramatically with the right components in place. We see this with post-World War II Japan. Its economy recovered quickly, seeing annual growth rates of 7.1% over the next decade. South Korea also transformed itself in a short span of time and is often touted as an economic miracle.\n\n![Graph](image://5ba406cc-51e7-4f8e-84cf-d7fa987bdc06 \"American economist and Nobel laureate, Robert Solow. Image: Olaf Storbeck from Düsseldorf, Deutschland, CC BY-SA 2.0 \u003Chttps://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons\")\n\nBut catching up to other countries is not the end goal. Once a country is at the cutting edge, it needs to sustain long-term growth, in case stagnation or decline take over. But catching up is the easier part. The further economies progress, the smaller the benefits of capital accumulation. **Achieving growth takes more than just investing resources in industry at this stage.**\n\nIn Solow’s Growth Model, economic growth, represented by GDP, is achieved through a combination of labor, capital, and technology. The model demonstrates how technology plays a pivotal role in allowing developed economies to achieve long-term growth.\n\n![Graph](image://8b919304-5a2e-4200-a3c7-7d525a58a956 \"Solow growth model diagram. Image: \nBluemoose at the English-language Wikipedia, CC BY-SA 3.0 \u003Chttp://creativecommons.org/licenses/by-sa/3.0/>, via Wikimedia Commons\")","9aa12831-12f0-4e74-a3ed-1277ef602cd3",[2155,2162,2170],{"id":2156,"data":2157,"type":59,"version":25,"maxContentLevel":36},"014c738e-3b05-4912-8b3e-22494dfcd25c",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2158,"clozeWords":2160},[2159],"In Solow's model, the further economies progress, the smaller the benefits of capital accumulation",[2161],"smaller",{"id":2163,"data":2164,"type":59,"version":25,"maxContentLevel":36},"888f7f4e-f10d-4d1b-b42f-45e8b114434c",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":2165,"activeRecallAnswers":2167},[2166],"In Solow's model, economic growth is achieved through which three things?",[758,2168,2169],"capital","technology",{"id":2171,"data":2172,"type":59,"version":25,"maxContentLevel":36},"bbf0affc-bf27-4ae0-a697-579ff2fbe535",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":2173,"multiChoiceCorrect":2175,"multiChoiceIncorrect":2176},[2174],"Who proposed the national growth model for developing countries?",[1881],[1476,1879,1882],{"id":2178,"data":2179,"type":28,"version":28,"maxContentLevel":36,"pages":2181},"e02377c9-4fa7-4abf-a196-42a4d76553ab",{"type":28,"title":2180},"Factors for Economic Growth",[2182,2206,2229],{"id":2183,"data":2184,"type":25,"maxContentLevel":36,"version":28,"reviews":2188},"c1d04c41-4ed5-4b41-b1a6-28c926b8ec91",{"type":25,"title":2185,"contentRole":28,"markdownContent":2186,"audioMediaId":2187},"Investing in physical and human capital","**The first factor of production in Solow’s Growth Model is physical capital**. Capital investment is a strong driver of production efficiency. Having a computer for each employee boosts office productivity more than if the entire staff were to share a single screen. Adding a second production line to a factory can double its output.\n\n![Graph](image://f98d7a89-88ca-4d48-a1a9-0d5a2fc593c3 \"Office full of laptops. Image: Jonathan Schilling, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nBut, at some point, **additional capital sees diminishing returns**. If, at any time, a factory only has enough raw materials to use 2 production lines, a third line won’t see much use. It can serve as an alternative when other units go down, but that’s the extent of its utility. An economy only needs so much capital. The larger capital investment grows, the smaller its marginal utility. This is the logic of diminishing returns.\n\n**Workers are the second factor of production**. They, too, require investment – to educate and train for their tasks. Likewise, we see diminishing returns for human capital. Society needs a certain number of PhD graduates to advance our body of knowledge, but imagine a world where everyone holds a PhD!","20333e41-d189-4a67-99eb-a66fc23efcdb",[2189,2196],{"id":2190,"data":2191,"type":59,"version":25,"maxContentLevel":36},"1951d2f9-67d2-471a-9168-43820ed237f3",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2192,"clozeWords":2194},[2193],"Capital investment is a strong driver of production efficiency",[2195],"Capital investment",{"id":2197,"data":2198,"type":59,"version":25,"maxContentLevel":36},"c1c25d45-8753-43bf-bf35-3c0903b9d45a",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":2199,"multiChoiceCorrect":2201,"multiChoiceIncorrect":2203},[2200],"What is the concept that additional capital does less good?",[2202],"Diminishing returns",[2204,2195,2205],"Hyperinflation","Trade tariff",{"id":2207,"data":2208,"type":25,"maxContentLevel":36,"version":28,"reviews":2212},"53c723a6-6ad7-46f9-bf94-80db79484b2d",{"type":25,"title":2209,"contentRole":28,"markdownContent":2210,"audioMediaId":2211},"Slowing into a steady state","**Another characteristic of physical and human capital is that they wear out over time**. Machines get old, and people retire. As they exceed their useful lives, they need to be replaced. The Solow Growth Model accounts for this. It acknowledges that, whatever gains an economy achieves from its output, it reinvests a portion, thereby reinvigorating capital.\n\n![Graph](image://d848745f-42cc-4933-aa27-e2452105f183 \"A half eaten retirement cake. Image: University of Scranton Weinberg Memorial Library from Scranton, Pennsylvania, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\nSo, **while an economy is still developing, it starts with low capital stock** – it could use more investment in machinery and transportation, or better education for its workforce. As it starts to grow, the economy pumps investment into these resources, allowing for a higher level of output. But, at some point, growth will slow down.\n\n**Over time, the economy will reach a point where capital stock wears down just as quickly as the economy is reinvesting into it**. At this point, capital reaches a steady state. It is no longer increasing because any investment being made is just enough to offset wear and tear. When an economy reaches steady state, growth grinds to a halt.","f3d38824-eb78-4b9e-9897-cafcb9e43e18",[2213,2220],{"id":2214,"data":2215,"type":59,"version":25,"maxContentLevel":36},"b12eb24e-d793-4ef9-81b9-41e35b0cb8b2",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2216,"clozeWords":2218},[2217],"Solow's Growth Model acknowledges that physical and human capital needs to be reinvigorated through reinvestment",[2168,2219],"reinvestment",{"id":2221,"data":2222,"type":59,"version":25,"maxContentLevel":36},"c5c01e01-8d9c-4524-8f0a-8e54f896f458",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":2223,"binaryCorrect":2225,"binaryIncorrect":2227},[2224],"What happens to the rate of growth as an economy develops to its steady state?",[2226],"Slows",[2228],"Quickens",{"id":2230,"data":2231,"type":25,"maxContentLevel":36,"version":28,"reviews":2235},"5d9941a3-6103-4ab6-ad13-5131ca3065d3",{"type":25,"title":2232,"contentRole":28,"markdownContent":2233,"audioMediaId":2234},"Pushing for innovation","**The final component of Solow’s production formula is technological advancement**. It is a crucial piece of the puzzle, as it can save an economy from a steady state. An economy can accumulate as much capital as it wants, but it will eventually hit a ceiling on productivity. But if an economy focuses on the quality of capital, this can have a far greater impact on productivity.\n\n**Technological advancements include ideas and processes, techniques and other improvements**. Think back to when Henry Ford invented the assembly line. This idea caused a massive shift in industries, resulting in dramatic leaps in productivity. Now, imagine a world without the assembly line but with significantly more workers and machines crowding factories. Output would most likely be a far cry from the first scenario.\n\n![Graph](image://c0d9e8b0-513c-49ee-8734-58409df6d2cc \"Robots assemble the Tesla Model S. Image: Steve Jurvetson from Los Altos, USA, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\n**By giving a boost in productivity, good ideas breathe new life into capital stock**. It shifts the production curve just that bit higher so that an economy is safe from the steady state for a bit longer. Innovation and ideas sustain growth at the cutting edge.","829fbaad-64a9-4bf4-b593-e5ec1d94b259",[2236,2243],{"id":2237,"data":2238,"type":59,"version":25,"maxContentLevel":36},"84df8b90-bcd0-43d8-8ea8-9e3e03d135a1",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2239,"clozeWords":2241},[2240],"Economies can be saved from a steady state through technological advancement",[2242],"technological",{"id":2244,"data":2245,"type":59,"version":25,"maxContentLevel":36},"e1847b0e-1283-40e1-8df3-4d43b51cdbbe",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":2246,"binaryCorrect":2248,"binaryIncorrect":2250},[2247],"In what direction do good ideas shift the production curve?",[2249],"Higher",[1735],{"id":2252,"data":2253,"type":29,"maxContentLevel":36,"version":28,"orbs":2256},"15c05d8e-a957-4415-9e6e-05b068188204",{"type":29,"title":2254,"tagline":2255},"Macroeconomics on the Ground","Examine universal basic income, the 4-hour workweek, and cryptocurrency from the perspective of macroeconomics.",[2257,2347],{"id":2258,"data":2259,"type":28,"version":28,"maxContentLevel":36,"pages":2261},"a579bd72-a26f-4326-8d4c-ead499eb4d21",{"type":28,"title":2260},"Understanding GDP and Wellbeing",[2262,2292,2313],{"id":2263,"data":2264,"type":25,"maxContentLevel":36,"version":25,"reviews":2268},"df922ee5-1a30-4052-a682-da0c429a0add",{"type":25,"title":2265,"contentRole":28,"markdownContent":2266,"audioMediaId":2267},"What's GDP got to do with it?","When people get philosophical about economics, they grumble about GDP. “How can it even measure societal wellbeing?” GDP goes up in wartime and after natural disasters. War requires arms production, and properties need repair following a disaster. But no one’s saying that either of the two leaves society better off.\n\nThe trouble with encapsulating a complex world into a single number is that it’s just not possible. **GDP does not measure a society’s wellbeing**. We have to stop imagining that GDP is anything more than it actually is – a measure of a country’s production. If we trace it back to its roots, **GDP started off as ‘national income.’** The name indicates clearly what it tries to measure. In fact, its inventor warned against using GDP as a measure of welfare.\n\nBut the desire to measure happiness and wellbeing is understandable. In this regard, metrics like **Genuine Progress Indicator, Gross National Happiness, and the Human Development Index** have been put forward. Ultimately, however, **no single measure is perfect**. A simple number can’t do justice to a complex world.\n","376358b3-99ff-40b4-92fb-a2413330401f",[2269,2276,2285],{"id":2270,"data":2271,"type":59,"version":25,"maxContentLevel":36},"b819a373-e9e2-410b-a5d7-06180e1e85e3",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2272,"clozeWords":2274},[2273],"Despite GDP increasing during wartime and after natural disasters, few believe it indicates that society is better off",[2275],"increasing",{"id":2277,"data":2278,"type":59,"version":25,"maxContentLevel":36},"dfa3eb51-7504-457b-bc5e-b72fc6c0a683",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":2279,"activeRecallAnswers":2281},[2280],"What metrics have been invented to attempt to measure societal happiness and wellbeing?",[2282,2283,2284],"Genuine progress indicator","Gross national happiness","Human development index",{"id":2286,"data":2287,"type":59,"version":25,"maxContentLevel":36},"f22a7e3a-ea23-4e3d-83fa-69d080b6e266",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":2288,"binaryCorrect":2290,"binaryIncorrect":2291},[2289],"Does GDP measure a society's wellbeing?",[430],[432],{"id":2293,"data":2294,"type":25,"maxContentLevel":36,"version":28,"reviews":2298},"3e916824-0c7e-4039-a8fc-277b8f13cd13",{"type":25,"title":2295,"contentRole":28,"markdownContent":2296,"audioMediaId":2297},"Finding funding for free money","What if you received $1000 every month, no questions asked? Would you spend it on booze, quit your job, enroll in night classes? This is one of the central debates around universal basic income (UBI).\n\nIf governments provide citizens a fixed amount regularly, will people put it to good use? Will society benefit, or will we have more lazy slouches relying on government welfare? Research has shown that the stereotypical welfare bum is a myth – at least in relation to UBI. In 1970, Canadians receiving UBI lessened their work hours, but to focus on childcare or pursue education, which, in turn, would benefit the economy in the long term.\n\n![Graph](image://5cffac8d-89eb-49ab-96af-c5acb8008c2e \"Parents play with their children in Heritage park in Calgary. Image: Thank you for visiting my page from Canada, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\n**Research also suggests UBI holds up better compared to unemployment welfare.** The latter’s stringent criteria and convoluted rules tend to confine recipients in a poverty trap. UBI skirts around these issues.\n\nA massive program like UBI will create ripples throughout the economy – perhaps, inflation? Well, UBI simply shifts money to those who need it; it doesn't create new money. But the funds need to come from somewhere, and here we find UBI’s most contentious point. Who pays for it?","9e817a66-e1df-4404-8e95-ca25036c599d",[2299,2306],{"id":2300,"data":2301,"type":59,"version":25,"maxContentLevel":36},"7184bc4e-d6fd-4424-adc6-e776ebb6f201",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2302,"clozeWords":2304},[2303],"Universal Basic Income ignores the stringent criteria of unemployment welfare to avoid the poverty trap",[79,2305],"poverty trap",{"id":2307,"data":2308,"type":59,"version":25,"maxContentLevel":36},"ac3f8a8a-4df5-48f0-86d1-3d466fcf2c47",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":2309,"activeRecallAnswers":2311},[2310],"What is the concept of a fixed regular payment from the government to all people called?",[2312],"Universal Basic Income",{"id":2314,"data":2315,"type":25,"maxContentLevel":36,"version":28,"reviews":2319},"23b1e69b-dca6-4898-a660-a08a318dea33",{"type":25,"title":2316,"contentRole":28,"markdownContent":2317,"audioMediaId":2318},"Working shorter hours to boost productivity","Cutting back workers’ hours is not a novel concept. The industrial revolution reduced the workweek from 6 days to 5. But a 4-day workweek – without a corresponding salary cut – brings significant changes.\n\n![Graph](image://9518430d-d3c1-4791-bd7e-118986d61717 \"Man found asleep in the office. Image: Quinn Dombrowski from Berkeley, USA, CC BY-SA 2.0 \u003Chttps://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons\")\n\nAmong the biggest selling points of a 4-day workweek is its impact on workers. An extra day off to attend to personal priorities or to just rest can improve quality of life. From an employer’s standpoint, improved worker wellbeing produces fewer sick days, lower incidences of burnout, and better employee retention.\n\n**Studies show that productivity either improves or remains unharmed with a 4-day workweek.** This demonstrates a common phenomenon in economics – diminishing returns. Working more hours produces lower-quality output. Just ask any healthcare professional who’s worked back-to-back shifts.\n\nThat's not to say the 4-day workweek is a brilliant idea that should’ve been implemented yesterday. Some industries will love it; others will find the adjustment process trickier. It requires more staff – and, thus, employee training – to cover for the extra day off. Systems need to be established to maintain continuity of service, especially in healthcare facilities, hospitality businesses, and the like. Until more research bears out its benefits, the debates will carry on.","432bde68-87e9-49e7-b91e-a1823a55f238",[2320,2328,2339],{"id":2321,"data":2322,"type":59,"version":25,"maxContentLevel":36},"745abda9-3a30-4a7d-80ad-f53ce5b6ece1",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2323,"clozeWords":2325},[2324],"Three advantages of the four day workweek are that it produces fewer sick days, lower instances of burnout and better employee retention",[2326,2327],"fewer","employee",{"id":2329,"data":2330,"type":59,"version":25,"maxContentLevel":36},"b5c7817e-0649-4482-a1fa-4d656c38f650",{"type":59,"reviewType":36,"spacingBehaviour":25,"multiChoiceQuestion":2331,"multiChoiceCorrect":2333,"multiChoiceIncorrect":2335},[2332],"How does the four-day workweek impact staffing levels?",[2334],"More staff are needed",[2336,2337,2338],"Less staff are needed","The same amount of staff are needed","More talented staff are needed",{"id":2340,"data":2341,"type":59,"version":25,"maxContentLevel":36},"bfce196a-04b7-4f5a-8523-247c272b958e",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2342,"clozeWords":2344},[2343],"Many studies have shown productivity is unharmed by the four-day workweek because of the law of diminishing returns",[2345,2346],"unharmed","diminishing returns",{"id":2348,"data":2349,"type":28,"version":28,"maxContentLevel":36,"pages":2351},"c68541f5-7be8-4e58-8e3c-cb86b39d01d3",{"type":28,"title":2350},"The Future of Work and Economy",[2352,2382,2398,2414],{"id":2353,"data":2354,"type":25,"maxContentLevel":36,"version":28,"reviews":2358},"33eac4b2-7ab2-474b-a30c-ed6d948ce4e2",{"type":25,"title":2355,"contentRole":28,"markdownContent":2356,"audioMediaId":2357},"The new (crypto)currency on the block","Cryptocurrencies have become a polarizing topic. On the one hand, you have ‘crypto bros’ preaching its gospel, and, on the other, the haters who dismiss it as a waste of resources. So, what is it, really?\n\n![Graph](image://c1697577-cfff-4342-b44c-a6ec37e99eab \"Bitcoin price chart in USD between 2010-2025\")\n\n**Cryptocurrencies are digital currencies that are traded semi-anonymously using a secure technology called blockchain**. With blockchain, information, once recorded, is accessible to everyone within the network and is completely unmodifiable. Crypto’s most striking feature is that it is not regulated by any central bank or authority. Instead, it uses a decentralized system or ledger – the blockchain – to keep tabs on all transactions.\n\nDoes it have any inherent value? No, but neither does the paper currency we use today. The value of cryptocurrency is determined by market forces. The available supply of a cryptocurrency increases through a process called ‘mining,’ but it's a costly and highly competitive process. In this sense, supply is fairly limited.\n\n![Graph](image://4603ee1e-57b1-481e-9dcc-c581ecac09b8 \"Crypto mining farm. Image: Marco Krohn, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\nBut, due to crypto’s newness and novelty, demand fluctuates, and so its value is extremely volatile. Some cryptocurrencies have addressed this issue by creating a ‘stablecoin,’ which burns and creates supply as necessary to peg themselves to a non-digital currency, usually the US dollar.","152c291a-4a87-4030-98d7-a585574e4595",[2359,2367,2375],{"id":2360,"data":2361,"type":59,"version":25,"maxContentLevel":36},"04bdf5be-4a47-43e8-bb75-b64fcb822a3a",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":2362,"binaryCorrect":2364,"binaryIncorrect":2366},[2363],"The value of cryptocurrencies is extremely...",[2365],"volatile",[126],{"id":2368,"data":2369,"type":59,"version":25,"maxContentLevel":36},"9ed20846-9696-4205-ad47-686120f3dcc1",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2370,"clozeWords":2372},[2371],"Cryptocurrencies are digital currencies that are traded semi-anonymously using a secure technology called blockchain",[2373,2374],"digital currencies","blockchain",{"id":2376,"data":2377,"type":59,"version":25,"maxContentLevel":36},"b7c9a2bb-7303-4eda-ab35-59554aeee05c",{"type":59,"reviewType":25,"spacingBehaviour":25,"activeRecallQuestion":2378,"activeRecallAnswers":2380},[2379],"Who regulates cryptocurrencies?",[2381],"Nobody",{"id":2383,"data":2384,"type":25,"maxContentLevel":36,"version":28,"reviews":2388},"231a7e28-7f19-461b-9869-360ba2e4712e",{"type":25,"title":2385,"contentRole":28,"markdownContent":2386,"audioMediaId":2387},"Two strikes, and…","One of the biggest questions for cryptocurrency is why. Why invest in it? Once your initial stake in crypto has grown, can you use it as a medium of exchange? Unfortunately, crypto is easy to buy into, but cashing out – using whatever coin you have to pay for something – isn’t so easy.\n\n![Graph](image://3f15925c-c715-47e2-beeb-2263ec6c645d \"Bitcoin daily price fluctuation example. Image: Fabo.Hax, CC BY-SA 4.0 \u003Chttps://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons\")\n\n**The first issue is volatility**. Crypto’s value fluctuates. On any given day, how much your crypto wallet can buy you varies. Some days it’s a brand-new car, some days a week’s groceries, and on bad days, maybe nothing. You have to constantly time purchases to cash out at the most opportune moment.\n\nWhich brings us to our next challenge. Who accepts cryptocurrencies as payment? Some companies have experimented with accepting some cryptocurrencies, mostly bitcoin, in fits and starts – Tesla, Microsoft, and Starbucks. **But several have since discontinued support, and, as such, crypto hasn’t truly reached mainstream usage yet worldwide**. That said, El Salvador and the Central African Republic have begun to recognize bitcoin as legal tender.\n\n![Graph](image://242e0ba4-016d-4ce5-a98a-98167e371a07 \"Graph depicting crypto adoption by country in 2020. Image: Katharina Buchholz, CC BY 3.0 \u003Chttps://creativecommons.org/licenses/by/3.0>, via Wikimedia Commons\")\n\nMost times though, cashing out on crypto means literally that – converting your coins back into conventional currency. **When stacked against conventional currencies, cryptocurrencies largely currently fail on 2 counts – as a medium of exchange and as a store of value.**","380b9726-b0a0-44d3-8c76-c7a0af9578b3",[2389],{"id":2390,"data":2391,"type":59,"version":25,"maxContentLevel":36},"d53790fc-98d9-423e-950d-28ceb5b4e0b0",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2392,"clozeWords":2394},[2393],"When stacked against conventional currencies, cryptocurrencies are currently a poor medium of exchange and store of value",[2395,2396,2397],"cryptocurrencies","exchange","value",{"id":2399,"data":2400,"type":25,"maxContentLevel":36,"version":28,"reviews":2404},"fb6445e1-883a-4e71-a0ad-2fed7bef762a",{"type":25,"title":2401,"contentRole":28,"markdownContent":2402,"audioMediaId":2403},"How will a crypto crash affect the economy?","Those who rode the crypto wave will eventually find it crashing down. It’s no different to when the housing bubble burst in 2007, or when Wall Street crashed in 1929. Markets will find a way to correct themselves. When the public get overly excited about a seemingly good investment, they want to cash in. Optimism begets more optimism. But now that the crypto market has crashed, pundits warn of a crypto winter. Should we brace for the worst?\n\n![Graph](image://96d95a8d-b1b7-45e8-a078-4963d585c20e \"To sell or not to sell? Image: alanharder.ca, CC BY 2.0 \u003Chttps://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons\")\n\nThere’s good news and there’s bad news. On the one hand, **experts don’t expect the crash to make any big waves beyond the crypto market**. With the US housing bubble, big banks and investment firms bought into the housing craze. This time, they stayed a safe distance away from cryptocurrencies.\n\nThe bad news is that **a large number of casual traders will be personally affected**. Individuals hurt from the huge losses may find themselves less optimistic, and this may affect how they spend and invest outside of cryptocurrency.","00de212d-ce9c-4245-a262-d13fe577cf79",[2405],{"id":2406,"data":2407,"type":59,"version":25,"maxContentLevel":36},"4ceb5d8d-32a3-4428-9b9b-bc2edbbb32aa",{"type":59,"reviewType":28,"spacingBehaviour":25,"binaryQuestion":2408,"binaryCorrect":2410,"binaryIncorrect":2412},[2409],"Who will be most heavily impacted by a crypto-crash?",[2411],"Casual Traders",[2413],"Big Banks",{"id":2415,"data":2416,"type":25,"maxContentLevel":36,"version":28,"reviews":2420},"c655a268-9b7d-4556-9f59-9c01c614d693",{"type":25,"title":2417,"contentRole":28,"markdownContent":2418,"audioMediaId":2419},"Surviving a recession, and other takeaways","What lessons from macroeconomics can we take into our daily lives? First, ignore the hype. **Some of the worst recessions the world has experienced came about because people invested in overvalued assets**. Don’t follow the wisdom of the crowd, especially if they're not thinking clearly. And most especially, don’t gamble away what you can’t afford to lose.\n\n**Second, recessions are a question of when, not if**. The business cycle moves at its own pace, but it will reach its next phase eventually. To this end, always be prepared. Build up an emergency fund. If you're lucky enough, a retirement fund too, now that you’ve encountered the life cycle theory of savings.\n\nThirdly, **think about inflation**. You can’t see it, but it's there. Safeguard your savings from inflation by investing them in assets that generate a decent rate of return.\n\nAnd lastly, stay calm. Inflation and bank runs are both self-fulfilling prophecies. If you're part of the panicking horde, you're part of the problem.","13b8ed34-b2e7-4919-980e-0a8c58810e96",[2421],{"id":2422,"data":2423,"type":59,"version":25,"maxContentLevel":36},"6cbe8a9a-bebb-4ac1-acfa-66b45bf01a2d",{"type":59,"reviewType":21,"spacingBehaviour":25,"clozeQuestion":2424,"clozeWords":2426},[2425],"Recessions are a question of when, not if",[2427,2428],"when","if",{"left":4,"top":4,"width":2430,"height":2430,"rotate":4,"vFlip":6,"hFlip":6,"body":2431},24,"\u003Cpath fill=\"none\" stroke=\"currentColor\" stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"m9 18l6-6l-6-6\"/>",{"left":4,"top":4,"width":2430,"height":2430,"rotate":4,"vFlip":6,"hFlip":6,"body":2433},"\u003Cg fill=\"none\" stroke=\"currentColor\" stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\">\u003Cpath d=\"M12.586 2.586A2 2 0 0 0 11.172 2H4a2 2 0 0 0-2 2v7.172a2 2 0 0 0 .586 1.414l8.704 8.704a2.426 2.426 0 0 0 3.42 0l6.58-6.58a2.426 2.426 0 0 0 0-3.42z\"/>\u003Ccircle cx=\"7.5\" cy=\"7.5\" r=\".5\" fill=\"currentColor\"/>\u003C/g>",1778179168751]