Most economic commentators believe balance of trade is a key factor in a currency’s exchange rate. All other things being equal, an increase in imports, which leads to a trade deficit, gives rise to an increase in the demand for foreign currency. To obtain foreign currency, importers sell their domestic currency for it. This strengthens the
Most people believe lending is associated with money. But there is more to lending. A lender lends savings to a borrower as opposed to “just money.” Let us explain. Take a farmer, Joe, who has produced two kilograms of potatoes. For his own consumption, he requires one kilogram, and the rest he agrees to lend for one year to another farmer, Bob.
On Wednesday, March 16, 2022, the US central bank, the Federal Reserve System, raised the target for the federal funds rate by 0.25 percent, to 0.50 percent. According to Fed officials, the increase in the federal funds rate target was in response to the strong increases in the yearly growth rate of the Consumer Price Index (CPI), which stood at
In the New York Times article “ How High Inflation Will Come Down ,” Paul Krugman suggests that the key for future inflation is inflation expectations. Krugman does not think that currently inflation expectations are comparable to the 1980s. According to him: Forty years ago, as many economists will tell you, inflation was “ entrenched ” in the
In his writings, the leader of the monetarist school of thinking, Milton Friedman, blamed central bank policies for causing the Great Depression of 1930s. According to Friedman, the Federal Reserve failed to pump enough reserves into the banking system to prevent a collapse of the money stock. Because of this, Friedman held, the M1 money stock,
By popular thinking, the key driver of economic growth is increases in the total demand for goods and services. It is also held that the overall output increases by a multiple of the increase in expenditure by government, consumers and businesses. Following this way of thinking it is not surprising that most commentators are of the view that by
Most experts tend to assess the strength of an economy in terms of real gross domestic product (GDP). The GDP framework looks at the value of final goods and services produced during a particular time interval, usually a quarter or a year. The GDP is formed as the summation of consumer outlays on goods and services; outlays by businesses
Some commentators attribute the latest sharp increase in the Consumer Price Index to businesses pushing prices of goods higher in order to secure higher profits. (See the New York Times article “ Democrats Blast Corporate Profits as Inflation Surges ,” January 3, 2022). Note that the yearly growth rate of the Consumer Price Index jumped to 6.8
Recently, a relatively new economics called behavioral economics (BE) has started to gain popularity. Its practitioners, such as Daniel Kahneman, Vernon Smith, and Richard Thaler, were awarded Nobel Prizes for their contribution in the field of BE. The BE framework emerged because of dissatisfaction with the neoclassical theory regarding consumer
Most commentators are currently preoccupied with large increases in the Consumer Price Index (CPI), which is labeled as inflation. The yearly growth rate of the CPI stood at 7.0 percent in December against 6.8 percent in November and 1.4 percent in December 2020. Pundits have been blaming the strong increase in the momentum of the CPI on the
What is the Mises Institute?
The Mises Institute is a non-profit organization that exists to promote teaching and research in the Austrian School of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard.
Non-political, non-partisan, and non-PC, we advocate a radical shift in the intellectual climate, away from statism and toward a private property order. We believe that our foundational ideas are of permanent value, and oppose all efforts at compromise, sellout, and amalgamation of these ideas with fashionable political, cultural, and social doctrines inimical to their spirit.
