Mercantilism was the dominant economic theory and practice in Europe from the 16th to the 18th … MercantilismRead more
Glossary
Economic Externalities
Economic externalities are unintended side effects of economic activities that impact third parties, either positively (e.g., education benefits society) or negatively (e.g., pollution harms public health). These spillover effects lead to market inefficiencies, as costs or benefits aren’t reflected in prices. Governments address externalities through tools like taxes (Pigouvian taxes), subsidies, regulations, and tradable permits (cap-and-trade). Understanding externalities helps policymakers and businesses align private incentives with social welfare for better economic outcomes.
The Gold Standard
The gold standard tied currency values directly to gold, ensuring stability but limiting economic flexibility. Learn how it worked, its pros (price stability, trust) and cons (deflation risks, policy constraints), and why most nations abandoned it for fiat money.
What Is Inflation in Economics?
Inflation is the sustained rise in the general price level of goods and services, reducing money’s purchasing power over time. It is measured by indices like the Consumer Price Index (CPI) and driven by factors such as demand-pull (excess demand), cost-push (rising production costs), monetary expansion, or wage-price spirals.
While mild inflation (2-3%) can stimulate spending and reduce debt burdens, high inflation erodes savings, creates uncertainty, and may spiral into hyperinflation (e.g., Zimbabwe, Venezuela). Central banks, like the Federal Reserve, combat inflation using interest rates and monetary policies.
Post-COVID, global inflation surged due to supply chain disruptions and stimulus spending, prompting aggressive rate hikes in 2023–2024. Managing inflation remains critical for economic stability.
The Triffin Dilemma
The Triffin Dilemma – the paradox that makes global dollar dominance both necessary and destabilizing – continues shaping 21st century economics. As the U.S. walks this monetary tightrope, emerging alternatives from CBDCs to commodity-backed currencies suggest the system may be approaching an inflection point unseen since 1971.
Stagflation
Stagflation is an economic paradox combining stagnant growth, high unemployment, and rising prices – a scenario that defies traditional economic models. This rare phenomenon creates unique policy challenges as standard inflation-fighting tools can worsen unemployment, while growth-stimulating measures may fuel further inflation.