Understanding Economics

Back to Basics

Finance & Development explains some fundamental concepts of economics

This compilation of Back to Basics articles from Finance & Development magazine, updated in 2017, explains basic economic concepts for the non-specialist.

II. How Economies Function

What Is Direct Investment?

Tadeusz Galeza and James Chan

Investors often seek profits from a long-term stake in a foreign operation

The Output Gap: Veering from Potential

Sarwat Jahan and Ahmed Saber Mahmud

Economists look for the difference between what an economy is producing and what it can produce

Structural Policies: Fixing the Fabric of the Economy

Khaled Abdel-Kader

Monetary and fiscal policies deal with short-term economic fluctuations, but an economy’s problems often go deeper

Money: At the Center of Transactions

Irena Asmundson and Ceyda Oner

Without it, modern economies could not function
"What Is Money?"

Price: The Language of Exchange

Irena Asmundson

A price is the amount of money a buyer gives a seller in exchange for a good or a service. But it can be more than that

Inflation: Prices on the Rise

Ceyda Oner

Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year

Unemployment: The Curse of Joblessness

Ceyda Oner

The number of people at work is generally closely related to whether an economy is growing at a reasonable rate

Recession: When Bad Times Prevail

Stijn Claessens and M. Ayhan Kose

It is a sustained period when economic output falls and unemployment rises
"What Is a Recession?"

Fiscal Policy: Taking and Giving Away

Mark Horton and Asmaa El-Ganainy

Governments promote stable and sustainable growth through their power to spend and tax

Externalities: Prices Do Not Capture All Costs

Thomas Helbling

GThere are differences between private returns or costs and the costs or returns to society as a whole

International Trade: Commerce among Nations

Brad McDonald

Nations are almost always better off when they buy and sell from one another

What Are Real Exchange Rates?

Luis Catão

What is the value of a country’s goods against those of another country, a group of countries, or the rest of the world, at the prevailing exchange rate?

Purchasing Power Parity: Weights Matter

Tim Callen

At what rate would the currency of one country have to be converted into that of another to buy the same goods and services in each country?

Capital Accounts: Liberalize or Not?

M. Ayhan Kose and Eswar Prasad

There are both benefits and costs to easing restrictions on capital that flows across a country’s borders

Current Account Deficits: Is There a Problem?

Atish Ghosh and Uma Ramakrishnan

There can be consequences when the amount a country spends abroad is wildly different from what it receives from the outside world