Fiscal policy is the use of government spending and taxation to influence the economy. When the government decides on the goods and services it purchases, the transfer payments it distributes, or the taxes it collects, it is engaging in fiscal policy. The primary economic impact of any change in the government budget is felt by […]| Econlib
The Austrian school of economics was founded in 1871 with the publication of Carl Menger’s Principles of Economics. menger, along with william stanley jevons and leon walras, developed the marginalist revolution in economic analysis. Menger dedicated Principles of Economics to his German colleague William Roscher, the leading figure in the German historical school, which dominated economic […]| Econlib
Junk bonds, also known less pejoratively as high-yield bonds, are bonds that are rated as “speculative” or “below investment” grade issues: below BBB for bonds rated by Moody’s and below Baa for bonds rated by Standard and Poor’s (the two main debt-rating agencies). Bond ratings measure the perceived risk that the bonds’ issuer will not […]| Econlib
The foreign exchange market is the market in which foreign currency—such as the yen or euro or pound—is traded for domestic currency—for example, the U.S. dollar. This “market” is not in a centralized location; instead, it is a decentralized network that is nevertheless highly integrated via modern information and telecommunications technology. According to a triennial […]| Econlib
Years later, the extraordinary cost of the 1980s S&L crisis still astounds many taxpayers, depositors, and policymakers. The cost of bailing out the Federal Savings and Loan Insurance Corporation (FSLIC), which insured the deposits in failed S&Ls, may eventually exceed $160 billion. At the end of 2004, the direct cost of the S&L crisis to […]| Econlib
Corporations are easier to create than to understand. Because corporations arose as an alternative to partnerships, they can best be understood by comparing these competing organizational structures. The presumption of partnership is that the investors will directly manage their own money rather than entrusting that task to others. Partners are “mutual agents,” meaning that each […]| Econlib
Paul Volcker, while chairman of the Board of Governors of the federal reserve system (1979–1987), was often called the second most powerful person in the United States. Volcker and company triggered the “double-dip” recessions of 1980 and 1981–1982, vanquishing the double-digit inflation of 1979–1980 and bringing the unemployment rate into double digits for the first […]| Econlib
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
The price of a share of stock, like that of any other financial asset, equals the present value of the sum of the expected dividends or other cash payments to the shareholders, where future payments are discounted by the interest rate and risks involved. Most of the cash payments to stockholders arise from dividends, which […]| Econlib
A private pension plan is an organized program to provide retirement income for a firm’s workers. Some 56.7 percent of full-time, full-year wage and salary workers in the United States participate in employment-based pension plans (EBRI Issue Brief, October 2003). Private trusteed pension plans receive special tax treatment and are subject to eligibility, coverage, and […]| Econlib
A worldwide depression struck countries with market economies at the end of the 1920s. Although the Great Depression was relatively mild in some countries, it was severe in others, particularly in the United States, where, at its nadir in 1933, 25 percent of all workers and 37 percent of all nonfarm workers were completely out […]| Econlib
In recent years, taxation has been one of the most prominent and controversial topics in economic policy. Taxation has been a principal issue in every presidential election since 1980—with a large tax cut as a winning issue in 1980, a pledge of “Read my lips: no new taxes” in the 1988 campaign, and a statement […]| Econlib
A monopoly is an enterprise that is the only seller of a good or service. In the absence of government intervention, a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit. Just being a monopoly need not make an enterprise more profitable than […]| 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
Social Security, or, to be precise, Old Age, Survivors and Disability Insurance (OASDI), is the U.S. government program that pays benefits to workers after retirement, to spouses and children of deceased workers, and to workers who become disabled before they retire. In 2003, the program had 47 million recipients, of whom 32.6 million were retired […]| Econlib
Saving means different things to different people. To some, it means putting money in the bank. To others, it means buying stocks or contributing to a pension plan. But to economists, saving means only one thing—consuming less out of a given amount of resources in the present in order to consume more in the future. […]| Econlib
Investment is one of the most important variables in economics. On its back, humans have ridden from caves to skyscrapers. Its surges and collapses are still a primary cause of recessions. Indeed, as can be seen in Figure 1, investment has dropped sharply during almost every postwar U.S. recession. As the graph suggests, one cannot […]| Econlib
If any twentieth-century economist was a Renaissance man, it was Friedrich Hayek. He made fundamental contributions in political theory, psychology, and economics. In a field in which the relevance of ideas often is eclipsed by expansions on an initial theory, many of his contributions are so remarkable that people still read them more than fifty […]| Econlib
