What is Economy? How does it work?

Explanation of the economic system in its simplest form; money, credit, spending, income, borrowing-lending, etc. are concepts. It is true that these concepts are effective in determining the power of the economy as well as forming the economy system. One of the most basic and well-known concepts is credit. Credit; It is defined as the money received for repayment with a future date and is one of the basic elements that provides power to the economy. More credit means more spending, more income, and more loans available from lenders. Therefore, credit also creates debt and expenditures must be reduced later. As a summary of this situation, governments lower and raise interest rates to keep the economy under control.

The economy is one of the most important factors in the course of the world. Although the economy plays an active role in the life of every individual living in the world, it is the most important factor in determining the direction of life. For this reason, economics is a concept worth knowing and understanding.

Although there are different definitions of the economy, it is basically defined as the place where the producer and the consumer meet and trade is made. However, although the activities and functioning of each country differ in terms of economic activity, they operate similarly.

 

INFLATION, DEFLATION AND CENTRAL BANKS

In the simplest terms, the supply of goods and services does not increase significantly in inflation, but it is a situation where demand increases. While expenditures are increasing rapidly, production does not increase, therefore, it is defined as the reflection on the market as an increase in price as the demand for existing goods and services increases. Consumer Price Index (CPI) is one of the important indicators in determining inflation.

Deflation is the opposite of inflation. This is defined as a general decrease in prices over a period of time, usually due to a decrease in spending. Because there is less spending, it is more of a recession.

A suggested solution for deflation is to lower interest rates, which is the method that is usually applied. Primarily by reducing credit debt, individuals are encouraged to borrow more. Like inflation, deflation can be measured with the Consumer Price Index.

 

INFLATION, DEFLATION AND CENTRAL BANKS

In the simplest terms, the supply of goods and services does not increase significantly in inflation, but it is a situation where demand increases. While expenditures are increasing rapidly, production does not increase, therefore, it is defined as the reflection on the market as an increase in price as the demand for existing goods and services increases. Consumer Price Index (CPI) is one of the important indicators in determining inflation.

Deflation is the opposite of inflation. This is defined as a general decrease in prices over a period of time, usually due to a decrease in spending. Because there is less spending, it is more of a recession.

A suggested solution for deflation is to lower interest rates, which is the method that is usually applied. Primarily by reducing credit debt, individuals are encouraged to borrow more. Like inflation, deflation can be measured with the Consumer Price Index.

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