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Week 29: Money Supply and Monetary Policy

Money Supply and Monetary Policy Money Creation and the Role of Banking 🎯  Objective To understand how money is created within the economy, how the banking system operates, and how central banks use monetary policy to influence economic activity, inflation, and financial stability. 🔹  1. What is Money Supply? Money supply  refers to the total amount of money available in an economy at a given time. Common measures include: M1 : Cash + checking deposits M2 : M1 + savings deposits + small time deposits M3  (if used): M2 + larger time deposits + institutional money 🔹  2. How Money is Created Money is created in two primary ways: a. Central Bank Money Creation The central bank (e.g., Federal Reserve, ECB) creates: Physical currency Bank reserves (the money commercial banks hold at the central bank) This is also called  high-powered money  or  base money . b. Commercial Bank Money Creation (Fractional Reserve Banking) Money is mostly created by...
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Week 28: Fiscal Policy – Government Spending, Taxes, and Economic Outcomes

  🎯  Objective To understand how governments use fiscal policy to influence economic activity, control inflation, reduce unemployment, and promote sustainable growth. 🧩  1. What is Fiscal Policy? Fiscal policy  refers to the use of government spending and taxation to influence the overall level of economic activity. It is a  demand-side policy , primarily aimed at influencing  aggregate demand (AD) . Managed by the  government , not the central bank (which handles monetary policy). 🏛️  2. Components of Fiscal Policy a.  Government Spending (G) Includes all expenditures by the public sector such as: Infrastructure (roads, schools, hospitals) Public salaries (teachers, police, healthcare workers) Social benefits (pensions, unemployment payments) Increasing  G  stimulates economic growth (expansionary), while decreasing  G  slows it down (contractionary). b.  Taxation (T) Taxes are the main source of government revenu...
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Week 27: Inflation and Deflation

  Inflation and Deflation Causes, Consequences, and Measurements 1. Introduction Inflation  and  deflation  are two crucial indicators of a country’s price stability and overall economic health. Inflation  refers to a  sustained increase in the general price level  of goods and services over time. Deflation  refers to a  sustained decrease in the general price level . Price stability is essential for economic growth, investment, and maintaining purchasing power. Central banks, such as the European Central Bank or the Central Bank of Turkey, closely monitor inflation and aim to keep it within a target range (e.g., 2%). 2. Understanding Inflation Definition: Inflation occurs when the general level of prices rises, meaning each unit of currency buys fewer goods and services than before. Formula for Inflation Rate: Inflation Rate = CPI t − CPI t − 1 CPI t − 1 × 100 Inflation Rate = CPI t − 1 ​ CPI t ​ − CPI t − 1 ​ ​ × 100 Where  C...
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Week 26: Unemployment

  Unemployment Types, Causes, and Costs of Unemployment 1. Introduction Unemployment  is one of the key indicators of a country’s economic health. It measures the percentage of the labor force that is willing and able to work but cannot find employment. Unemployment Rate = Number of Unemployed People Labor Force × 100 Unemployment Rate = Labor Force Number of Unemployed People ​ × 100 A moderate level of unemployment is normal in a dynamic economy, but high or prolonged unemployment indicates economic inefficiency and social problems. 2. Types of Unemployment Economists classify unemployment into several main types depending on its cause and duration. a. Frictional Unemployment Occurs when people are temporarily unemployed while changing jobs or entering the workforce. Example: A recent graduate searching for their first job. Usually short-term and unavoidable. b. Structural Unemployment Results from a mismatch between workers’...
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