In the previous post, we looked at what inflation is and how they calculate it. In today's post, we are going to, as always, look at inflation with a practical example called The Brick Wall Theory example. Don't know what that is? Read about it here. If you don't want to read about what inflation is and just want to see an example that is also fine. I will tell you in short what inflation is to make sure that you will be able to understand the example. Inflation is the process of a sustained, significant rise in the general price level over a period of time. Basically, inflation is the proc ..read more

What is leakages and injections? Leakages refer to money leaving the economy while injections refer to money entering the economy. The four roleplayers in the economy have a direct impact on leakages and injections in the economy.  Leakages Leakages occur when money gets removed from the flow of the economy. This can happen in three ways: Savings (S) Taxes (T) Imports (M) When people or businesses in the economy choose to keep some of their available income in the form of savings, they withhold that money from entering the economies flow. This is then seen as a leakage because that money g ..read more

What is inflation? Inflation is the process of a sustained, significant rise in the general price level over a period of time. Inflation thus lowers the purchasing power of money which means that the real value of the money decreases. For example, something will cost you 10$ today but in 10 years, that same product would cost you 13$. Inflation There are a wide variety of definitions that can be used to describe the process of inflation. I prefer the definition mentioned above for 3 reasons: 1. The definition is neutral. This definition is formulated on the basic symptom of inflation, pri ..read more

In the previous post, we looked at what the business cycle is and what the different phases of the business cycle are. In today's post, we are going to analyze the different phases of the business cycle by using the Brick Wall Economic Theory as an example. If you want to learn more about the theory behind the Business Cycle you can go read about it here as this post will be a practical analysis of the different phases of the business cycle. On that post, we covered that the business cycle consists of two main phases called the contraction phase and the expansion phase. The contraction phase ..read more

What is the Business Cycle in economics? The business cycle can be described as successive periods of rising and falling economic activities. It can also be called the economic cycle or the trade cycle. A business cycle is measured by the upward and downward movement of the gross domestic product (GDP) and fluctuates constantly. The fluctuations are sometimes bigger than others and vary in length. Business Cycle with trendline The changes in the business cycle is repetitious but not periodic like the phases of the moon. What this means is that after a period where the business cycle moves ..read more

The circular flow of the economy refers to how goods and services, as well as money, flows through the economy. Think of it this way. When you buy something, you exchange that product for money. The money you gave don't just stop right there, that money then gets used by the person you bought it from to buy something else. If this sounds a bit confusing to you don't worry because luckily my brick wall economic theory can be used to explain a lot of things related to the economy. (If you don't know what the brick wall theory is, you can read all about it in my first post by clicking here.) Th ..read more

About three months ago my neighbour announced that he was going to make the wall between our houses taller. This doesn't sound like a problem at first, but then you start to realise what all the implications are. The first problem is that the wall is built with bricks. The wall then gets coated with a special plaster primer paint, and after that, it gets painted with a coat of paint that is resistant to the elements of mother nature. Now you may ask me why that is a problem? See, bricks are placed on top of each other and cemented in place. For those of you who don't know, cement is a runny ..read more