Basics of Economics

Economics is divided into two broad categories. * Microeconomics and * Macroeconomis

Microeconomics – Study of individual decisions taken by bussiness , House holders , Workers etc. Microeconomics and Macroeconomics are complementary to one another.

Macroeconomics – Focuses on the study of economics taken by countries and governments and assesses the economy as a full .

Deals with issues like inflation , growth , inter-country trades , unemployment etc. it’s more sort of a top-down approach where the country is analyzed first and subsequently industry and businesses .The most common Macroeconomics factors are Gross Domestic Product ( GDP ) , Inflation ,Government debt , business cycles etc.

Microeconomics is comparable to bottom-up approach where businesses must be analyzed first followed by industry and country .

Mixed economy refers to a financial set-up where public enterprise further as private enterprise both co-exists.

Command economy, on the opposite side, the govt. regulates the market or owns the key industries. Production and sales of products are determined by the govt. Cuba and North Korea are a number of the few countries with a command economy.

Closed Economy is that economy during which neither imports nor exports occur therein particular country. As the name suggests the country provides the consumers with everything they have from within the country’s economy.

An economic boom is that the expansion and peak phases of the fluctuation, it is also referred to as upswing , upturn and a growth period . During a boom, key economic indicators will rise. Gross domestic product which measures a nation’s economic output, increases.


Economic recession may be a period of general economic decline and is often among a call in the stock exchange, a rise in unemployment, and a decline within the housing market. Generally a recession is a smaller amount severe than a depression.


Depression could be a sustained future downturn in economic activity in one or more economies. it’s more severe economic downturn than a recession , which could be a slowdown in economic activity over the course of a standard variation. Depressions are characterized by their length , by abnormally large increase in unemployment, falls within the availability of credit, shrinking output as buyers dry up and suppliers reduce on production and investment, more bankruptcies including sovereign debt defaults, significantly reduced amounts of trades and commerce ( especially international trade ) , additionally as highly volatile relative currency value fluctuations ( often thanks to currency devaluations ) .

Price deflation , financial crisis and bank failures also are common elements of a depression that don’t normally occur during a recession.


Recovery is that the phase of fluctuation following a recession, during which an economy regains and exceeds peak employment and output levels achieved before downturn.


Inflation occurs when the costs of products and services increase over time. Inflation cannot be measured by a rise within the cost of 1 product or service, or perhaps several products or services.

Rather, inflation may be a general increase within the overall price index of the products and services within the economy. Therefore, the short term measure to counter inflation is to extend the costs of general goods.

Inflation and economic process are parallel lines and may never meet. Inflation reduces the worth of cash and makes it difficult for the people. Inflation and economic process are incompatible, due to the previous affects all sectors as indicated by CPI or Consumer indicant.

A zero rate of inflation obtains necessarily in an exceedingly year where the annual rate of inflation is both falling and rising in an year.

Unexpected inflation tends to harm those whose money received – in terms of wages and interest payments – doesn’t rise with inflation.

Inflation can help people who owe money which will be paid back in less valuable, inflated dollars. Low rates of inflation have relatively little economic impact over the short term. Over the medium and future, however, even low rates of inflation can complicate future planning.

High rates of inflation can muddle price signals within the short-term and stop economic process from operating efficiently.


GDP, Gross Domestic Product, measures the entire value of all final goods and services produced within the economy of a rustic during a given year. GDP provides an economic snapshot of a rustic, accustomed estimate the scale of an economy and rate of growth. GDP may be calculated in 3 ways, using expenditures, production, or incomes. It is adjusted for inflation and population to produce deeper insights. Though it has limitations, GDP may be a key tool to guide policy-makers, investors, and businesses in strategic decision-making.

The GDP Growth Rate compares the year-over-year (or quarterly) change in country’s economic output , usually expressed as a percentage rate. this measure is important for economic policy-makers because GDP growth is assumed to be closely connected to key policy targets like inflation and unemployment rates. If GDP growth rates accelerate, it’s going to be a symptom that the economy is overheating and therefore the financial institution may seek to lift interest rates. Conversely, central banks see a shrinking (or negative) GDP rate of growth (i.e. recession ) as an indication that rates should be lowered which stimulus is also necessary.

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