If you find you have only a passing understanding of the daily barrage of economic news and you want to learn more, you're in the right place. Each month in Economy 101, we'll approach a different aspect of the economy in clear and simple language. Economics is about choices, and our choices are only as good as our understanding of the issues.
Stock Market Bubbles and Crashes
Trying to make sense of the stock market as economic cycles bubble with a rapid expansion, and then crashes when investors start selling off shares or assets?
Cost of Living Adjustment
Find out all about the Cost of Living Adjustment (COLA) — from how it’s determined to what types of COLAs benefit employees today.
Tax Credits and Tax Deductions
One of the most effective ways to lower your income tax bill is to claim tax credits and tax deductions. Find out about the most common claims and which you may qualify for.
Filing for bankruptcy is generally considered a worst-case scenario because the results are so long-lasting and far-reaching. Do you know the difference between Chapter 7 and Chapter 13?
One tool many investors use to decide where to invest their money is the price to earnings ratio, also commonly referred to as the price multiple, earnings multiple, or simply, multiple.
So what exactly is a money market account? A savings account? An investment vehicle? The answer is…both. The money you deposit in this type of account is usually invested in short-term, fixed-income securities, such as U.S. Treasuries.
Mutual funds are a mainstay in most people’s portfolios. Why so popular? The short answer is “variety.” With myriad options to choose from, and each mutual fund offering a collection of investments, mutual funds seem to offer something for everyone.
Federal Deposit Insurance Corporation (FDIC)
You hear these letters in a lot of bank commercials. But what do they mean? Learn more about this independent federal government agency, and the role they play in insuring money.
Life insurance is a contract where, in exchange for you paying regular premiums (commonly monthly, quarterly or yearly), an insurance company agrees to pay a benefit to your designated beneficiaries when you die. Most people purchase life insurance as protection for their families who depend on their income and would otherwise have difficulty meeting current and future financial obligations.
Purchasing a bond is essentially giving its issuer a loan that they will pay back with interest. Learn more about this popular investment option.
Many people looking for a safe, short-term place to invest their money choose U.S. Treasury Bills, or T-Bills. Learn more about this popular investment option.
Stocks Part 2: History
Investors around the world have traded shares of company stock via the The New York Stock Exchange, Paris Bourse, FTSE International, Tokyo Stock Exhange, and many others as long ago as the 15th century, when, in Antwerp, Belgium, prior to the existence of actual shares of stock, moneylenders would meet to trade loans and bonds.
Stocks Part 1
A share of stock is a share of ownership in a company that can be sold or bought. If you own a share of a company's stock, you are in fact part owner of that company. Ownership of a company's stock typically means that you are given the opportunity to vote on company matters such as the election of board members and that you will share in the company's profits either by an increase in the value of your shares or by the distribution of dividends to share holders.
World Trade Organization
Located in Geneva, Switzerland, the World Trade Organization (WTO) is an international body with 153 member nations whose stated objectives include providing a forum for trade negotiations, handling trade disputes, and monitoring trade policies. The WTO was established in 1995 to succeed the post-World War II General Agreement on Tariffs and Trade, itself an international agreement and organization designed to reduce barriers to international trade.
Interest is what you pay lenders for the use of their money. It is the price of a loan expressed in an annual percentage rate. There are a plethora of interest rates, some of which get more attention than others. Here are three interest rates of key interest to American consumers.
There is sometimes confusion around the difference between fiscal policy and monetary policy. While both are instruments that can be used by the government to influence the economy, monetary policy employs interest rates and money supply in this effort, while fiscal policy refers to taxing and spending by government to stimulate the economy.
Items such as equipment, tools, and machinery that are needed to produce goods and services are often referred to in economics as "physical capital." Similarly, "human capital" is the talent, skills, education, and experience of human beings that allow them to be productive in the creation of products and services. As our economy has evolved over time into one that is more service-oriented, human capital has increased in importance.
We hear the term "market economy" batted about frequently in the news, most recently in the context of China's desire to be recognized as a market economy by the European Union. We know that in the United States we operate in a market economy, but how is that defined, and what exactly does it mean?
In economics, an externality is a side-effect, either positive or negative, of production or consumption. It occurs when the impact of the activity spills over onto third parties, not otherwise engaged in the activity.
Free market economies such as ours in the United States move regularly through consecutive phases of expansion and contraction know as business cycles.
Inflation is one of the most familiar and easily definable economic topics to anyone who has watched the decrease in the purchasing power of their money. Put simply, inflation is a general increase in prices of goods and services over time.
Monetary policy consists of the steps the central bank of a nation can take in order to regulate the nation's money supply. For instance, a central bank might reduce interest rates during a recession in order to make loans more readily available to other banks and thus stimulate economic recovery.
The central bank of a nation serves as its main financial institution. It manages the country's finances and is in charge of its monetary policy. In the United States, that entity is the Federal Reserve System.
A recession, sometimes called a contraction, is a period of economic slowdown and is often marked by high rates of unemployment, plunging stock prices, lower corporate profitability, and consumer anxiety. It is actually a normal part of the cycle of business in a market economy, which tends to move regularly through booms and busts, expansion and contraction, recovery and recession.
Employment & Unemployment Rate
In good times and in bad we hear about the unemployment rate in the news media. That’s because understanding current employment levels and trends is one of the keys to predicting where the economy is headed.
Consumer Confidence Index
The latest Consumer Confidence Index report is released at 10:00 a.m. Eastern on the last Tuesday of each calendar month. These numbers are eagerly anticipated by Wall Street and the entire business community because the index is seen as a leading economic indicator of the relative health of the economy and is generally correlated to GDP growth.
Consumer Price Index
Each month, the United States Bureau of Labor Statistics (BLS) releases the latest Consumer Price Index (CPI). You’ll typically hear it expressed in terms of a monthly increase or decrease - 0.8 percent decrease in the month of December, 0.3 percent increase during January. This number is a measure of the change in price that an average consumer pays for a pre-defined “market basket” of goods and services. As such, CPI is sometimes referred to as the cost-of-living index, because it literally measures the average consumer’s cost of living. It is also one of the key measurements of inflation.
Gross Domestic Product
Once every three months the economic news will be dominated by the Gross Domestic Product (GDP). That’s because the last day of the quarter is when the U. S. Department of Commerce’s Bureau of Economic Analysis releases the GDP report - for the previous quarter. The GDP is so difficult to calculate that it takes an entire government bureau a full three months just to come up with their initial estimate, and then over the next quarter the numbers are revised at least twice more as new information comes in.
Economy 101: What's It All About?
Open a newspaper or switch on the television and the news is the same – the Gross Domestic Product of the United States has seen its largest dip since 1982, in January we saw the single greatest loss of jobs since the early 1970s, and consumer confidence has hit a quarter century low. But what does this all really mean, and how did we get here?
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