What is a Common Market? A common market is a formal agreement where a group is formed amongst several countries that adopt a common external tariff. In a common market, countries also allow free trade and free movement of labor and capital among the members of the group. The trade arrangement is aimed at providing…
What are Rational Expectations? Rational expectations is an economic theory that states that individuals make decisions based on the best available information in the market and learn from past trends. Rational expectations suggest that people will be wrong sometimes, but that, on average, they will be correct. Understanding the Concept of Rational Expectations The idea…
What is the Kondratieff Wave? The Kondratieff Wave is a concept that was introduced during the Russian Communist era by a sociologist economist, Nikolai D. Kondratieff. He noticed that agricultural products and copper prices underwent long-term economic cycles that he believed to be a result of technological innovation and periods of evolution. Kondratieff first introduced…
What is a Liquidity Trap? A liquidity trap is a situation where an expansionary monetary policy (an increase in the money supply) is not able to increase interest rates and hence does not result in economic growth (increase in output). In the case of deflation or recession, individuals hold on to the money in their…
What is Shrinkflation? In economics, shrinkflation is the practice of reducing the size or quantity of a product while the price of the product remains the same or slightly increases. In some cases, the term may indicate lowering the quality of a product or its ingredients while the price remains the same. British economist Pippa…
What is Abenomics? Abenomics is the name given by economists and policymakers to the economic and social policies followed by the Japanese government under Prime Minister Shinzo Abe. When Prime Minister Abe assumed office in 2012, the country was still recovering from the 2008/09 recession. In addition, Japan went through long periods of low and…
What is the Paradox of Thrift? The Paradox of Thrift is the theory that increased savings in the short term can reduce savings, or rather the ability to save, in the long term. The Paradox of Thrift arises out of the Keynesian notion of an aggregate demand-driven economy. An increase in the rate of saving…
What is an Economic System? An economic system is a means by which societies or governments organize and distribute available resources, services, and goods across a geographic region or country. Economic systems regulate the factors of production, including land, capital, labor, and physical resources. An economic system encompasses many institutions, agencies, entities, decision-making processes, and…
What is the Fisher Price Index? The Fisher Price Index, also called the Fisher’s Ideal Price Index, is a consumer price index (CPI) used to measure the price level of goods and services over a given period. The Fisher Price Index is a geometric average of the Laspeyres Price Index and the Paasche Price Index….
What is the Paasche Price Index? The Paasche Price Index is a consumer price index used to measure the change in the price and quantity of a basket of goods and services relative to a base year price and observation year quantity. Developed by German economist Hermann Paasche, the Paasche Price Index is commonly referred…
