Cover

Table of Contents

Cover

Series page

Title page

Copyright page

INTRODUCTION

CHAPTER 1 GROWTH

WHAT IS ECONOMIC GROWTH?

THREE MEASURES OF ACTIVITY

HOW IT ALL FITS TOGETHER

FOCUS ON HOUSEHOLD SPENDING AND INVESTMENT BY FIRMS

VOLUMES, VALUES AND THE SEASONS

BUSINESS CYCLES AND TREND GROWTH

MULTIPLIERS

SPARE CAPACITY AND THE ‘OUTPUT GAP’

RECESSIONS AND DEPRESSIONS

COMPARING ECONOMIES ACROSS THE WORLD

WHAT TO WATCH

CHAPTER 2 INFLATION

WHAT IS INFLATION?

HOW PRICES ARE DETERMINED

CAUSES OF INFLATION: DEMAND-PULL VERSUS COST-PUSH

THE IMPORTANCE OF INFLATION

EXPECTATIONS

A HISTORY OF INFLATION

CHAPTER 3 EMPLOYMENT

INTRODUCTION

MEASURING JOBS AND JOBLESSNESS

THE JOBS MARKET AND WAGES

TYPES OF UNEMPLOYMENT

OKUN’S LAW

TIME LAGS

PRODUCTIVITY

THE PHILLIPS CURVE AND THE ‘NATURAL RATE’ OF UNEMPLOYMENT

WHY THE PHILLIPS CURVE STOPPED WORKING

CHANGES IN THE WORKFORCE

CHAPTER 4 TRADE

WHAT IS INTERNATIONAL TRADE?

COMPARATIVE ADVANTAGE

THE BALANCE OF PAYMENTS

CURRENCIES AND TRADE

GOING BACK TO BALANCE

PURCHASING POWER PARITY

THE ASIAN CRISIS

PROTECTIONISM

GLOBAL TRADE DEALS

CHAPTER 5 MONEY

WHY DOES MONEY EXIST?

WHAT IS MONEY TODAY?

MONEY DEMAND – THE MOTIVES FOR HOLDING MONEY

MONEY SUPPLY AND CREDIT CREATION

HOW INTEREST RATES ARE DETERMINED

THE QUANTITY THEORY OF MONEY

THE IMPORTANCE OF MONEY IN PRACTICE

THE BORROWERS AND SAVERS OF MONEY

HOUSEHOLD BORROWING AND DEBT

BORROWING BY FIRMS

THE EFFECT OF BORROWING ON THE ECONOMY

THE 2007 CREDIT CRISIS – IN A NUTSHELL

CHAPTER 6 CENTRAL BANKING

WHAT DO CENTRAL BANKS DO?

HOW CENTRAL BANKING STARTED

INTEREST RATES

THE TRANSMISSION MECHANISM

FORECASTING

INFLATION TARGETING

MONETARY POLICY RULES

QUANTITATIVE EASING

FINANCIAL STABILITY

CHAPTER 7 THE PUBLIC FINANCES

WHAT ARE THE PUBLIC FINANCES?

BALANCING THE BUDGET

THE ROLE OF GOVERNMENT

THE KEYNESIAN APPROACH

TAXES

DEBT AND BOND MARKETS

SOVEREIGN DEFAULTS

CHAPTER 8 HOUSING

THE MARKET FOR HOUSING

HOW WE MEASURE HOUSE PRICES

WHAT DRIVES THE PRICE OF HOUSES?

AFFORDABILITY

HOUSING AS AN INVESTMENT

THE IMPORTANCE OF HOUSING TO THE WIDER ECONOMY

BUBBLE TROUBLE AND THE SUB-PRIME CRISIS

CONCLUSION

ACKNOWLEDGEMENTS

SOURCES

Index

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Title page

INTRODUCTION

Have you ever wondered what makes an economy tick, and why recessions happen? Or why prices rise and fall? Why do governments borrow money, and why does it matter if they borrow too much? What causes unemployment? Why are house prices so important for the economy? And what is it that causes our savings rates and the cost of borrowing to move up and down?

If you have, then you’re already interested in economics.

These are the sort of issues that we hear about every day in the newspapers and on the television news. There’s always been a certain fascination with what’s going on in the economy. This has been particularly true since the global credit crisis, with the recession that followed having had such as large impact on economies and businesses worldwide.

Never has it been more important to understand what’s going on in the world of economics. The last few years have shown us that we can’t always rely on strong economic growth and a rate of inflation that remains stable from one year to the next. Sometimes things go wrong, and when they do the economy is rarely out of the news.

To the uninitiated, understanding economics can be a daunting prospect. Sometimes news stories assume that the reader, viewer or listener knows more about economics than is actually the case. But you don’t need a degree to understand economics. In fact, economics is a very logical subject and the basics can be grasped very easily. It is no coincidence that the eighteenth century economist Adam Smith – dubbed the Father of Economics – began his career at Glasgow University as Professor of Logic.

What this book aims to do is to provide a basic introd­uction to the subject of economics. Understanding economics is one of the cornerstones of running any business. So having a feel for what’s going on in the economy will give you a much better idea of the factors that are driving your business – both now and in the future.

Whether you’re in business and want to have a better feel for the economic forces that are affecting your bottom line, or you’re just looking to improve your general awareness of how the economy works, then this book provides a simple introduction to the subject. It explains key economic ideas in simple terms, and we hope it will whet your appetite for reading more about the subject of economics in the future.

So, in summary, if you’re after an introduction to the broad field of economics then you need look no further than this book. Economics is a fascinating subject, one which is becoming ever more popular within schools and universities up and down the country. Take a look in your local bookshop and you’ll see how much interest there is by the number of books on popular economics and, in particular, the recent credit crisis.

This book gives you the resources you need to get a clearer picture of how the economy works, what economic developments mean for you and your business, and an ability to better understand the economic analysis and discussion you read in the newspapers and see on television every day.