What I forgot about Economics

So this is a really personal blog.

I am a business student and Economics is not my major. My “official” knowledge about economics is just somewhat more than basic Macro and Micro Economics as the required courses in my university freshmen year. Although I am interested in following economy related news, and I have been learning more about the topic, there are many times when I find myself in need of some kind of reminding of the basic foundations about Economics where everything else about the subject is built on.

I am currently reading a book called The Little Book of Economics (yes, I am kind of stuck with the Little Book series). And this blog is a review of what I have read so far. You won’t find anything new here, as most of them are very basic economics knowledge. Yet sometimes I find myself needing these to fill what has gone from my memory.

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A Recipe for Economic Growth:

Numerous factors determine a country’s success and whether its companies are good investments. Inflation and interest rates, consumer spending, and business confidence are important in the short run. In the long run, though, a country becomes rich or stagnates depending on whether it has the right mix of people, capital and ideas. Get these fundamentals right, and the short-run gyrations seldom matter.

GDP can be measured in two ways:

• Expenditure-based GDP: total of all the money spent on stuff
• Income-based GDP: total of all the money earned producing stuff

1. Expenditure-based GDP = Consumers + Government (on schools, military…) + Investment (bakery’s new oven or building, but not spending on inputs) + Export (represents what foreigners spend on things made in the country) – Import (exclude what local people spend on things made in other countries)
2. Income-based GDP includes wages, benefits, bonuses earned by workers and managers; profits of company and their shareholders; interest earned by lenders; rent earned by landlords

Economy Cycles:

Ultimately, long-run growth drives our standard of living. In the short run, the economy goes through regular cycles of expansion and recession. These cycles are driven by how much consumers and businesses spend, which in turn depends a lot on their view of the future.

About unemployment:

According to the Congressional Budget Office (CBO), the labor force grew 1 percent per year in the United States during the 2000s. Since people are always joining and quitting the labor force, some months it would grow by half a million and other months it would fall by as much. But, on average, the labor force grew by 120,000 people per month. That meant employment had to grow by more than that for unemployment to fall. 

(When I thought about unemployment, I always failed to interpret that into a moving or evolving scene. But in reality, just imagine the number of fresh graduates rushing out of campus to become part of the labor force every year. The term is an indicator showing the changes and movements of the economy, rather than just a label.)