Foundations of Economics: The Law of Scarcity Most of the basic laws of economics focus on ways to efficiently build wealth and prosperity over time.  But there are important financial concepts that turn this problem in the other direction, instead choosing to focus on the effects that a lack of available resources can have on the economy as a whole.  The Law of Scarcity is one of these foundational ideas – and its implications can have a drastic impact on the ways a society produces its goods and services. Concept of Scarcity In finance, the term scarcity refers to the idea that an ..read more

Fed Policy: Why Do Rates Hikes Hurt Stock Markets? On December 18th, the Federal Reserve announced a rate hike of 25 basis points. For the U.S. economy, this is the fourth increase of 2018 and it brings the Fed funds rate to a range of 2.25% to 2.5%.  The move came despite strong opposition from U.S. President Donald Trump, and equities prices fell quickly in response to the decision. As a clear indication that investors are also unhappy with the move, stock markets are now set to close the 2018 in negative territory for the first time since 2009.  So, what exactly is the reason stocks tend ..read more

Financial Markets: What Is The Price To Earnings Ratio? For those without experience, the stock market can seem like a complicated entity.  But the reality is that most of the strategic conclusions that are drawn by hedge funds and other large investors can be boiled down to relatively simple math equations. One example is the price-to-earnings ratio, or P/E ratio.  This financial metric is often used to assess a stock’s market price level in relation to its ability to generate corporate earnings over a specified period of time.  The P/E ratio can be useful in determining whether a stock is “c ..read more

Economics: The Study of how society deals with scarcity. Here is a brief article on the introductory components of any economy with a macroeconomic slant. In the economy we expect to find these four components: resource endowment, technology, preference, institutions. Some key terms that you should be aware of include: Scarcity: Resources are limited in any environment relative to the needs and desires of the people who control them. Opportunity cost: value of most highly valued foregone alternative; every benefit has a cost. Another way to look at it is trade offs –> hence in this system ..read more

This article continues on from a previous entry in our macroeconomic blog category called Balance of Payments explained. This article provides an example of the national income accounting scheme in action within an open economy. Comments are always welcome. Remember the income identity: Y = C + I + G + CA Well in an open economy aggregate savings = Y – C – G = I + CA, OR, I = S-CA To finance investment you can either go to the current account or savings (or borrow from the world). I (investment) is domestic investment financed by savings and foreign savings. Some examples: Case 1 (Closed e ..read more

Including Intro to Balance of Payments Here is a brief tutorial to aid newbie economists understand the constructs behind national income accounting and balance of payments (the two are related). To do so we’ll introduce the two measures of national income which most of you are familiar with: GDP (gross domestic product) and GNP (gross national product). Gross Domestic Product (GDP): the total value of all FINAL goods and services produced in an economy (country) domestically in a given time period. Gross National Product (GNP): the total value of all FINAL goods and services (G&S) produce ..read more

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