When you talk about the economy, it’s like opening up a can of worms.
Where do you start when it comes to educating yourself? Locally? Globally? Where should you point your attention to?
Well, the thing is, every economy is somewhat connected — so it’s just as important to know what is happening in your backyard, as it is the issues being handled overseas.
It can be pretty overwhelming, but Money Morning is a good place to start.
At a basic level, an economy, big or small, is an area of the production, distribution, or trade, and the consumption of goods and services by different agents.
It’s all about scarcity — the world has limited means to meet unlimited wants, so there are always choices to be made.
Everything that an economy produces is measured by GDP (Gross Domestic Product). It defines the sum of market values, or prices, of all final goods and services produced in an economy during a period of time.
When the GDP growth rate turns negative, the economy enters a recession.
What keeps the lifeblood of the economy flowing is consumer spending. The other three main components are business expenditures, government spending, and net imports.
Supply and demand — including labour, represented by employment, and various natural resources and exports — drive an economy forward.
When demand is greater than supply, inflation occurs, and prices go up. It’s a difficult side effect to stamp out. It is controlled by monetary policy, which also acts to stimulate an economy and keep banking systems flowing smoothly.
Trade policy affects the costs of imports and exports to other countries. Trade agreements seek to reduce trade cost and ultimately increase each country’s GDP.
Fiscal policy is also known as the federal budget — all the revenue ultimately comes from your taxes, so it’s important for you to know how it’s being spent. Fiscal policy is used to stimulate, guide, or depress an economy — but remember, only business can create economic growth.
There’s a lot to understand when it comes to the economy, but don’t fear — here at Money Morning, we cover this section frequently.
We pride ourselves on being an independent, free-thinking publication delivering thought-provoking content with expert opinions.
What you’ll find here is an enlightening perspective on the Australian and Global economy, that can provide useful insights for your investment decisions.