The base effect definition is when the comparison of two data points is made, and the starting point of the comparison is the base year. The base effect can be either positive or negative, depending on whether the data point in the base year is higher or lower than the data point in the current … Read more
Reintermediation is the process of using new intermediaries to replace traditional intermediaries in the financial system. In other words, reintermediation is the process of financial innovation. Reintermediation can take many forms. For example, new financial technology (fintech) firms are using the internet and mobile technology to provide financial services directly to consumers, bypassing traditional banks … Read more
A credit tranche is a type of investment that is created when a group of loans are bundled together and then sold to investors. The loans in the tranche may have different interest rates, maturities, and credit ratings. The term “tranche” comes from the French word for “slice”, and each tranche is like a slice … Read more
The GDP price deflator is a measure of inflation in an economy. It is calculated by dividing the nominal GDP by the real GDP and multiplying by 100. The resulting number is the percentage change in prices from one period to another. The formula for the GDP price deflator is as follows: GDP Price Deflator … Read more
The substitution effect is the change in consumption that results from a change in the price of a good. The substitution effect occurs because a change in price alters the relative price of two goods, making one relatively more expensive than the other. This encourages consumers to substitute the more expensive good for the less … Read more
What is Aggregate Demand? Aggregate demand is an economic measurement of the sum of all final goods and services produced in an economy, expressed as the total amount of money exchanged for those goods and services. It is often represented by the formula: AD = C + I + G + (X-M), where AD is … Read more
The “Price Level” is the average level of prices for all goods and services in an economy. The price level is measured by the Consumer Price Index (CPI). The CPI is a basket of goods that represents a typical consumer’s purchases. The CPI is calculated by taking the prices of the basket of goods and … Read more
An economic shock is a sudden and significant event that affects the economy of a country or region. These events can include natural disasters, political coups, financial crises, and more. Shocks can have both positive and negative effects on the economy, depending on the particular situation. What is stagflation in simple words? Stagflation is a … Read more
Formula and Example. The multiplier effect is the additional impact on national income of an increase in spending. The multiplier is greater than 1 because an increase in spending creates a ripple effect of increased economic activity. The size of the multiplier depends on the marginal propensity to consume, which is the percentage of extra … Read more
The term “neutrality of money” refers to the idea that changes in the money supply only affect nominal variables in the economy, such as prices, wages, and exchange rates. It does not affect real variables, such as employment, output, and productivity. The concept of neutrality of money is a key part of monetarist economics, which … Read more
