Economists use the term “inflation” to denote an ongoing rise in the general level of prices quoted in units of money. The magnitude of inflation—the inflation rate—is usually reported as the annualized percentage growth of some broad index of money prices. With U.S. dollar prices rising, a one-dollar bill buys less each year. Inflation thus […]| Econlib
Bankruptcy is common in America today. Notwithstanding two decades of largely uninterrupted economic growth, the annual bankruptcy filing rate has quintupled, topping 1.5 million individuals annually. Recent years also have seen several of the largest and most expensive corporate bankruptcies in history. This confluence of skyrocketing personal bankruptcies in a period of prosperity, an increasingly […]| Econlib
Present value is the value today of an amount of money in the future. If the appropriate interest rate is 10 percent, then the present value of $100 spent or earned one year from now is $100 divided by 1.10, which is about $91. This simple example illustrates the general truth that the present value […]| Econlib
Bond markets are important components of capital markets. Bonds are fixed-income financial assets—essentially IOUs that promise the holder a specified set of payments. The value of a bond, like the value of any other asset, is the present value of the income stream one expects to receive from holding the bond. This has several implications: […]| Econlib
The rate of interest measures the percentage reward a lender receives for deferring the consumption of resources until a future date. Correspondingly, it measures the price a borrower pays to have resources now. Suppose I have $100 today that I am willing to lend for one year at an annual interest rate of 5 percent. […]| Econlib
One of the most important building blocks of economic analysis is the concept of demand. When economists refer to demand, they usually have in mind not just a single quantity demanded, but a demand curve, which traces the quantity of a good or service that is demanded at successively different prices. The most famous law […]| Econlib
