What is a Contractionary Monetary Policy? A contractionary monetary policy is a type of monetary policy that is intended to reduce the rate of monetary expansion to fight inflation. A rise in inflation is considered the primary indicator of an overheated economy, which can be the result of extended periods of economic growth. The policy…
What is an Expansionary Monetary Policy? Expansionary monetary policy is a type of economic policy that aims to increase the rate of money supply to stimulate economic growth. A country’s central bank can enact expansionary monetary policy by lowering interest rates, reducing bank reserve requirements, and buying government securities. The goal is to make borrowing…
What is Government Spending? Government spending refers to money spent by the public sector on the acquisition of goods and provision of services such as education, healthcare, social protection, and defense. In national income accounting, when the government acquires goods and services for current use to directly satisfy the individual or collective needs and requirements of…
What is the Tragedy of the Commons? The tragedy of the commons is an economic theory that states that individuals use up resources shared by many to benefit themselves. The reality is often that because individuals tend to act in a selfish way, using resources shared by a group, everyone ends up suffering in the…
What is Laissez-faire? Laissez-faire is a French phrase that translates to “allow to do.” It refers to a political ideology that rejects the practice of government intervention in an economy. Further, the state is seen as an obstacle to economic growth and development. The term originated in the 18th century during the Industrial Revolution. French…
What is Protectionism? Protectionism is the practice of following protectionist trade policies. A protectionist trade policy allows the government of a country to promote domestic producers, and thereby boost the domestic production of goods and services by imposing tariffs or otherwise limiting foreign goods and services in the marketplace. Protectionist policies also allow the government to…
What is the Current Account? One of three components of a country’s balance of payments system, the current account is the country’s trade balance, or the balance of imports and exports of goods and services, plus earnings on foreign investments minus payments to foreign investors. The other two components are the capital account and the…
What is the Real Economy? The real economy refers to all real or non-financial elements of an economy. An economy can be solely described using just real variables. A barter economy is an example of an economy with no financial elements. All goods and services are purely represented in real terms. A barter economy does…
What is Economics? Economics comes from the ancient Greek word “oikonomikos” or “oikonomia.” Oikonomikos literally translates to “the task of managing a household.” French mercantilists used “economie politique” or political economy as a term for matters related to public administration. Adam Smith’s Definition of Economics Adam Smith was a Scottish philosopher, widely considered as the…
What is Austerity? Austerity measures refer to government policies that aim to reduce public sector debt. Uncontrolled increases in a country’s public debt tend to increase financial instability within the country and can, if left unchecked, cause a national or even regional recession. Austerity policies tend to increase unemployment within the economy and are generally…
