Economics 101

Since the economy is still in the toilet this seems like as good a time as any to learn a little bit about the subject of economics. This can be a deep, oft confusing, and sometimes boring subject so I will keep each article in the series fairly short so as not to put anyone asleep. I may need to remind myself now and again the this subject may not be as fascinating to you as it is too me so I will try to make this understandable for the easily bored layman.

So what is economics? It seems this easiest of questions is not so easy to understand, and the definition will vary from person to person and from resource to resource.

The Economists Dictionary of Economics defines economics as “The study of the production, distribution, and consumption of wealth in human society.”

Purdue University offers this explanation. “Economics is a social science that studies human behavior. Economics has a unique method for analyzing and predicting individual behavior as well as the effects of institutions and the government.

Economics can be further broken down into two parts, Microeconomics and Macroeconomics.

Microeconomics deals with decisions made on a lower level. Such as a man gets laid off from his job. Does he just sit and collect unemployment checks or does he progressively pursue another job; or does he go back to school?

Macroeconomics deals with the sum total of all decisions made by individuals in society, such as, “how does a change in interest rates effects peoples spending habits?”

The last thing I am going to cover in this first installment is the answer to the question that is always in my mind when the talk turns to the horrible economy.

Why don't we just print more money? What if the Federal Reserve mailed out a million dollars to each household this weekend? Sounds like a great idea to me, sign me up!

If the Federal Reserve did this prices would skyrocket; but let's pretend that it didn't happen. What would you do with your money? Some would save it, some would spend it, and pretty much everybody would do some combination of the two. If it was me I would go out and buy that new Ducati motorcycle I couldn't afford yesterday. I am pretty sure I wouldn't be the only one. Now the dealership has a problem. Should they keep the price the same and not have enough to sell to everyone who wants one or do they raise the prices? The obvious decision is to raise the prices and if every other retailer did so too there would be massive inflation and the dollar would be devalued. Now if the Ducati store did not raise the prices they would run out and people would start offering horribly inflated prices to get someone to sell theirs to them.

So, don't get your hopes up. It doesn't look like the government will be mailing out those million dollar checks any time soon.