I have some basic idea of what economics is, mostly from reading news. Apart from that I don’t know much. I was asking to my ex-collegue on what is Stock and how to start investing. I googled a bit in parallel. He guided me into this journey. For me, stock is more of a practical way to learn the market. I learnt that I am not a theoritical person. You learn by doing is my way of learning a thing and read theory when you need.
While in stocks, I ended up reading a lot on financials and market. Obviously this led to economics. This is the theoritical part and I considerd this mostly boring. But until recently, I ended up reading about Adam Smith and few other classical economist. I started to see how economics is literally everywhere. It is affecting you, me and everyone. Decisions government take, why it takes it, how we are impacted. Why we earn so much, where we spend, what is capitalism, socialism why Karl Marx was saying, what he was saying. These were for me a gateway to another world that was impacting me and I never felt a need to learn. Way I see Economics from my recent intro, it is a way to understand the world. You start seeing the world objectively. You understand why a politician or a corporates do certain things in a certain way. Economics is the undercurrent in all the wars, all the conferences. The way I understand economics, it is the way you understand past world events, philosophy of the current events and mental model to do some future predictions.
It also introduced me to so many economists like Daniel Kahneman, Amos Tversky, Adam Smith, Paul Krugman, Edward Prescott, Milton Friedman, John Keynes, Alfred Marshall, John Williamson, Friedrich Von Hayek, Carl Menger and many others.
I want to share, what I read in a minimal way for me to revisit. Of course, take it with a pinch of salt.
Some Key Glossaries
- Supply and Demand = Fundamental model of market economy. More the demand, higher the price.
- Monetary Policy = The way government uses money, specifically interest rates to influence country’s economy. Low interest rates increases money circulation
- Fiscal Policy = The way government chooses to spend money and implement taxation. Impose more tax, when more public works are happening. Less taxes when government wants people to have more money in their pockets.
- Stimulus Policy = Used to reinvigorate a downward economy by tax breaks or paying people money. Experts argue this distorts the market.
- Aggregate Demand = Total demand for goods and service at a certain time.
- Laissez-faire = A french word that means - “let it be”. An approach that advocates for minimal government interference in market economy. Experts who support this believe market will acheieve its equilibrium by itself.
- Globalization = When the restrictions to international trade is removed, companies can trade freely. Meaning a company can source materials from different countries and assemble them in a different country. This process thereby increses the transportation and supply chain logistics.
- World Bank and IMF = In 1944, as part of Bretton Woods Conference World Bank and Internation Monetary Funds(IMF) was created. Primary goal was to help poor countries and post war economic recovery. It helps to liberalize the trade policies of a country. But experts believe policies are helping Multinational companies to exploit countries that has debts.
- Deregulation = Process of minimizing the government controls like tariffs on imports, currency controls, minimum wage etc.
- Inflation = Increase in price of goods/services within a certain period of time. Measured using Consumer Price Index (CPI). Hyperinflation leads to market instability. Real value of money reduces and thereby affecting workers and inturn the economy.
- GDP - Gross Domestic Product = Shorthand to measure country’s economic performance. It is the total goods and services sold in the country in a year. High GDP indicates country’s economy is good.
- Capitalism = Economic System where production is owned by private owners or corporations. Price of the product is determined by the free market. Profits are taken by the owners and distributed to investors.
- Exchange Rate = Value of one currency in relative to other. Mostly determined by markets.
- Macroeconomics = Study of whole economy, the big picture.Shows you the relations and dependency between various variables like GDP, Unemployment, Wages, Interest Rates etc.
- Microeconomics = Shows you how an individual action of a person or a corporation or an institution affect an economy and there by specific country/market.
- Subsidies = provided by government to support local products, producers and be self-sustained. It improves country’s payments. How much they import vs how much a country exports. Generally countries like to export more than they import.
- Cost/Benefit Analysis = Process to determine if there is a benefit in purchasing or leasing an asset or a property.
- Subprime = Indicates the risk profile of a loan. Certain loans are considered risky given the credit score, ability to repay, variable changes to the asset used as guarantee.
- Bond = Seller or issuer provide the bonds to secure money for their investment. Buyers gets interests paid by the seller until certain end date, called maturity date. A point in time where the money is repaid in full. Usually issued by Government, banks and large corporations for a long period of time. typically 5-30 years.
- Deficit = When government spends more than it collects in taxes.
- Recession = When the economy shrinks. typically measured by GDP falling atleast two quarters.
In Part2, I would like to write on some common economy models and systems out there that drive many economic conversations.
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