The Printing Press — money and inflation
What is the one-word term for a sustained rise in the general price level?
Inflation. Note: the general level, not the price of one product
Which year is taken as the start of the Great Depression?
1929 — the Wall Street crash (Black Thursday, 24 October; Black Tuesday, 29 October)
What does GDP measure?
The value of all final goods and services produced within a country in a given period
The Nobel Prize in Economics differs from all the other Nobel prizes. How?
Alfred Nobel never established it. Sweden’s central bank created it in 1968, first awarded 1969; formally it is the Prize in Economic Sciences in Memory of Alfred Nobel
What does the Big Mac Index compare, and who publishes it?
The purchasing power of currencies — what the same burger costs in different countries, which shows whether a currency is under- or overvalued. Published by The Economist since 1986
Prices are falling rather than rising. What is this called, and why do economists fear it?
Deflation. People postpone purchases waiting for lower prices, demand falls, and the real burden of debt grows — a downward spiral
Which market did the 2008 global crisis begin in?
The US subprime mortgage market
How does GDP differ from GNP?
GDP goes by territory (whoever produced it), GNP by national ownership (wherever they produced it)
A psychologist who never took an economics course won the Nobel in Economics. Who, and for what?
Daniel Kahneman, 2002, for showing that people systematically violate the rational-choice model. The foundation of behavioural economics; author of Thinking, Fast and Slow
The central bank raises its rate. What happens to demand for flats, and why?
It falls. Mortgages get more expensive, monthly payments rise, and a share of buyers drops out of the market
Which country issued a banknote with a face value of one hundred trillion?
Zimbabwe. The Reserve Bank of Zimbabwe introduced the note on 16 January 2009 (the note itself is dated 2008); hyperinflation peaked in late 2008
The first documented financial bubble, 17th-century Holland. What was being traded?
Tulip bulbs. The mania peaked in February 1637
A full-time student and a stay-at-home parent — are they counted as unemployed?
A full-time student and a stay-at-home parent — are they counted as unemployed?
Days before the 1929 crash, America’s most famous economist announced that shares had reached a permanently high plateau. Who was he?
Irving Fisher, 15 October 1929. A genuinely great economist, ruined within weeks — the standing reminder that expertise is not prophecy
The national currency falls sharply. Who inside the country gains, and who loses?
Exporters gain (revenue in foreign currency, costs at home) along with domestic producers competing against imports. Importers, travellers and anyone buying imported goods lose
Your salary rose by 10% this year. Inflation was 12%. Are you better off?
No. Nominal income rose, real income fell by roughly 2% (precisely 1.10 ÷ 1.12 − 1 ≈ −1.8%). The point: compare an income change to inflation, not to zero
What does “too big to fail” mean, and where is the danger in it?
A bank large enough that its collapse would bring down the whole system, so the state rescues it. The danger is moral hazard: a bank that expects rescue takes on more risk
What is the central bank’s policy rate, and how does raising it bring inflation down?
The rate at which the central bank lends to commercial banks. A higher rate makes credit more expensive, so borrowing and demand fall and price growth slows. The side effect is that the economy slows too
What is the name of the curve linking inflation and unemployment in an inverse relationship?
The Phillips curve
What is the consumer basket, and what does the state need it for?
A fixed set of goods and services whose changing cost is used to calculate the consumer price index — that is, official inflation
What is stagflation, and why was it long considered theoretically impossible?
Inflation and stagnation — a slump with rising unemployment — at the same time. It contradicts the Phillips curve, under which one should fall as the other rises. It happened in the 1970s after the oil shocks
Which country was at the centre of the eurozone debt crisis of 2010–2012, and why couldn’t it simply devalue its currency?
Greece. It had no currency of its own — the euro is run by the ECB. A shared monetary policy alongside separate national budgets is the structural weakness of a currency union
A country’s public debt is 100% of GDP. Why is that not the same situation as a household owing a full year’s income?
A government does not retire, so it can roll debt over indefinitely rather than repay it by a deadline; its “income” is taxes, which grow with the economy; it borrows in a currency it controls; and its spending itself adds to GDP, the very thing the debt is measured against. Debt is still a real constraint — interest payments crowd out other spending, and debt in a foreign currency removes most of these advantages
Who is called the father of the euro, for the theory of when a group of countries should share one currency?
Robert Mundell, optimum currency area theory, Nobel 1999
Official inflation is 8%, but people are convinced prices rose 25%. Who is lying?
Nobody. The average basket does not match any individual’s spending. People notice what they buy often — food, fuel — and those items usually rise faster. Memory adds to it: everyone remembers last year’s price of milk, nobody remembers last year’s price of a fridge