To begin with, let’s discuss what quantitative easing (QE) is. QE is a monetary policy tool used by central banks to increase the supply of money in circulation and stimulate economic growth. It involves the central bank purchasing government bonds or other financial assets, effectively injecting additional money into the economy. With quantitative easing, there are some formulas and equations that may be useful for understanding the topic further. For example, the formula for the money supply multiplier can help explain how an increase in bank reserves can lead to an increase in the money supply. Money supply multiplier =…

This article discusses the different price indexes used to measure inflation and changes in the cost of living. Price indexes are important economic tools used to track the price changes of goods and services. Governments, businesses, and investors use them to make informed decisions about policy, pricing, and investment. consumer price index (CPI): The first type of price index discussed is the consumer price index (CPI). The CPI measures the average change in prices paid by consumers for a basket of goods and services. This basket of goods and services includes items such as food, housing, clothing, and transportation. The…

Inflation refers to the general increase in the price level of goods and services in an economy. They calculate the percentage change in the Consumer Price Index (CPI) which tracks the prices of a basket of goods and services commonly consumed by households to measure it. Inflation can be both good and bad, depending on the context and the level of inflation. Here are some of the positive and negative effects of inflation: Beneficial effects of inflation: Stimulates economic growth: Moderate inflation can be good for an economy because it encourages spending and investment. When prices are rising, consumers and…

Fractional banking is a banking system in which banks are only required to hold a fraction of the total amount of deposits made by customers. The remaining amount can provide loans and earn interest. This system allows banks to make more loans than they could with the actual amount of deposits they have received. Understanding the Fractional Reserve System In a fractional reserve system, banks are only required to hold a fraction of the total amount of deposits made by customers. For example, if a bank has a reserve requirement of 10%, it means that the bank is required to…

What Is Stagflation, and Why Is It Bad? Stagflation is an economic phenomenon that occurs when an economy experiences stagnant growth, high unemployment, and rising prices simultaneously. This phenomenon is a challenging economic condition can have severe consequences on an economy. In this article, we will discuss what stagflation is, its causes, its effects, and its impact on individuals and the economy. Introduction Stagflation is a unique economic phenomenon that occurs when an economy experiences high inflation rates, low economic growth, and high unemployment rates at the same time. It is a challenging economic condition can have significant consequences for…