BACK TO
BASICS
Economic concepts explained
,BACK TO
BASICS
Economic concepts explained
, © 2017 International Monetary Fund
Commissioning editor: James L. Rowe
Managing editor: Marina Primorac
Production editor: Lijun Li
Copy editor: Lucy Morales
Cover design: IMF Multimedia Services
, Back to Basics: Economic concepts explained
v Foreword 16 Monetarism: Money Is Where It’s At
Maurice Obstfeld Its emphasis on money’s importance gained sway in the
1970s
Sarwat Jahan and Chris Papageorgiou
I. THE BIG PICTURE II. HOW ECONOMIES FUNCTION
2 What Is Capitalism? 20 What Is Direct Investment?
Free markets may not be perfect but they are probably Investors often seek profits from a long-term stake in a
the best way to organize an economy foreign operation
Sarwat Jahan and Ahmed Saber Mahmud Tadeusz Galeza and James Chan
4 What Is Keynesian Economics? 22 The Output Gap: Veering from Potential
The central tenet of this school of thought is that Economists look for the difference between what an
government intervention can stabilize the economy economy is producing and what it could produce
Sarwat Jahan, Ahmed Saber Mahmud, and Chris Sarwat Jahan and Ahmed Saber Mahmud
Papageorgiou
24 Structural Policies: Fixing the Fabric of
6 Micro and Macro: The Economic Divide the Economy
Economics is split into two realms: the overall economy Monetary and fiscal policies deal with short-term
and individual markets economic fluctuations, but an economy’s problems
G. Chris Rodrigo often go deeper
8 Economic Models: Simulations of Reality Khaled Abdel-Kader
Economists build simplified descriptions to enhance 26 Money: At the Center of Transactions
their understanding of how things work Without it, modern economies could not function
Sam Ouliaris Irena Asmundson and Ceyda Oner
10 Econometrics: Making Theory Count 28 Price: The Language of Exchange
For economic theory to be a useful tool for A price is the amount of money a buyer gives a seller
policymaking, it must be quantifiable in exchange for a good or a service. But it can be more
Sam Ouliaris than that
12 Supply and Demand: Why Markets Tick Irena Asmundson
Buyers and sellers meet and at the right price all 30 Inflation: Prices on the Rise
products are sold Inflation measures how much more expensive a set of
Irena Asmundson goods and services has become over a certain period,
14 Gross Domestic Product: An Economy’s usually a year
All Ceyda Oner
When it is growing, especially if inflation is not a 32 Unemployment: The Curse of Joblessness
problem, workers and businesses are generally better off The number of people at work is generally closely
than when it is not. related to whether an economy is growing at a
Tim Callen reasonable rate
Ceyda Oner
Economics Concepts Explained | FINANCE & DEVELOPMENT iii
BASICS
Economic concepts explained
,BACK TO
BASICS
Economic concepts explained
, © 2017 International Monetary Fund
Commissioning editor: James L. Rowe
Managing editor: Marina Primorac
Production editor: Lijun Li
Copy editor: Lucy Morales
Cover design: IMF Multimedia Services
, Back to Basics: Economic concepts explained
v Foreword 16 Monetarism: Money Is Where It’s At
Maurice Obstfeld Its emphasis on money’s importance gained sway in the
1970s
Sarwat Jahan and Chris Papageorgiou
I. THE BIG PICTURE II. HOW ECONOMIES FUNCTION
2 What Is Capitalism? 20 What Is Direct Investment?
Free markets may not be perfect but they are probably Investors often seek profits from a long-term stake in a
the best way to organize an economy foreign operation
Sarwat Jahan and Ahmed Saber Mahmud Tadeusz Galeza and James Chan
4 What Is Keynesian Economics? 22 The Output Gap: Veering from Potential
The central tenet of this school of thought is that Economists look for the difference between what an
government intervention can stabilize the economy economy is producing and what it could produce
Sarwat Jahan, Ahmed Saber Mahmud, and Chris Sarwat Jahan and Ahmed Saber Mahmud
Papageorgiou
24 Structural Policies: Fixing the Fabric of
6 Micro and Macro: The Economic Divide the Economy
Economics is split into two realms: the overall economy Monetary and fiscal policies deal with short-term
and individual markets economic fluctuations, but an economy’s problems
G. Chris Rodrigo often go deeper
8 Economic Models: Simulations of Reality Khaled Abdel-Kader
Economists build simplified descriptions to enhance 26 Money: At the Center of Transactions
their understanding of how things work Without it, modern economies could not function
Sam Ouliaris Irena Asmundson and Ceyda Oner
10 Econometrics: Making Theory Count 28 Price: The Language of Exchange
For economic theory to be a useful tool for A price is the amount of money a buyer gives a seller
policymaking, it must be quantifiable in exchange for a good or a service. But it can be more
Sam Ouliaris than that
12 Supply and Demand: Why Markets Tick Irena Asmundson
Buyers and sellers meet and at the right price all 30 Inflation: Prices on the Rise
products are sold Inflation measures how much more expensive a set of
Irena Asmundson goods and services has become over a certain period,
14 Gross Domestic Product: An Economy’s usually a year
All Ceyda Oner
When it is growing, especially if inflation is not a 32 Unemployment: The Curse of Joblessness
problem, workers and businesses are generally better off The number of people at work is generally closely
than when it is not. related to whether an economy is growing at a
Tim Callen reasonable rate
Ceyda Oner
Economics Concepts Explained | FINANCE & DEVELOPMENT iii
