UNDERSTANDING ECONOMICS
Back to Basics
Finance & Development explains some fundamental concepts of economics
The "Back to Basics" feature has been a mainstay of the IMF’s Finance & Development magazine since 2003. It aims to explain basic concepts for the non-specialist. We have revisited the series, updating and revising where needed, and compiling the most relevant Back to Basics stories in one place. The series is ongoing and we will add new “Back to Basics” stories as they appear in the magazine.
The Big Picture
What Is Capitalism?
Sarwat Jahan and Ahmed Saber Mahmud
Free markets may not be perfect but they are probably the best way to organize an economy
Free markets may not be perfect but they are probably the best way to organize an economy
What Is Keynesian Economics?
Sarwat Jahan, Ahmed Saber Mahmud, and Chris Papageorgiou
The central tenet of this school of thought is that government intervention can stabilize the economy
The central tenet of this school of thought is that government intervention can stabilize the economy
Micro and Macro: The Economic Divide
G. Chris Rodrigo
Economics is split between analysis of how the overall economy works and how single markets function.
G. Chris Rodrigo
Economics is split between analysis of how the overall economy works and how single markets function.
Further Reading
- Rethinking Macroeconomics
Olivier Blanchard - Underlying Causes of the Financial Crisis
Erlend Nier and Ouarda Merrouche - Nobel Laureates Assess Global Crisis
Camilla Andersen
Economic Models: Simulations of Reality
Sam Ouliaris
Economists build simplified descriptions to enhance their understanding of how things work.
Sam Ouliaris
Economists build simplified descriptions to enhance their understanding of how things work.
Econometrics: Making Theory Count
Sam Ouliaris
If economic theory is to be a useful tool for policymaking, it must be quantifiable.
Sam Ouliaris
If economic theory is to be a useful tool for policymaking, it must be quantifiable.
Supply and Demand: Why Markets TickIrena Asmundson
Buyers and sellers meet and at the right price all products are sold
Gross Domestic Product: An Economy’s All
Tim Callen
When it is growing, especially if inflation is not a problem, workers and businesses are generally better off than when it is not.
Tim Callen
When it is growing, especially if inflation is not a problem, workers and businesses are generally better off than when it is not.
Monetarism: Money Is Where It’s At
Sarwat Jahan and Chris Papageorgiou
Its emphasis on money’s importance gained sway in the 1970s
Sarwat Jahan and Chris Papageorgiou
Its emphasis on money’s importance gained sway in the 1970s
How Economies Function
What Is Direct Investment?
Tadeusz Galeza and James Chan
Investors often seek profits from a long-term stake in a foreign operation.
Tadeusz Galeza and James Chan
Investors often seek profits from a long-term stake in a foreign operation.
The Output Gap: Veering from Potential
Sarwat Jahan and Ahmed Saber Mahmud
Economists look for the difference between what an economy is producing and what it could produce
Sarwat Jahan and Ahmed Saber Mahmud
Economists look for the difference between what an economy is producing and what it could produce
Structural Policies: Fixing the Fabric of the Economy
Khaled Abdel-Kader
Monetary and fiscal policies deal with short-term economic fluctuations, but an economy’s problems often go deeper
Khaled Abdel-Kader
Monetary and fiscal policies deal with short-term economic fluctuations, but an economy’s problems often go deeper
Money: At the Center of Transactions
Irena Asmundson and Ceyda Oner
Without it, modern economies could not function
"What Is Money?"
Irena Asmundson and Ceyda Oner
Without it, modern economies could not function
"What Is Money?"
Price: The language of exchange
Irena Asmundson
A price is the amount of money a buyer gives a seller in exchange for a good or a service. But it can be more than that.
Irena Asmundson
A price is the amount of money a buyer gives a seller in exchange for a good or a service. But it can be more than that.
Inflation: Prices on the RiseCeyda Oner
Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year
Unemployment: The Curse of Joblessness
Ceyda Oner
The number of people at work is generally closely related to whether an economy is growing at a reasonable rate
Ceyda Oner
The number of people at work is generally closely related to whether an economy is growing at a reasonable rate
Recession: When Bad Times Prevail
Stijn Claessens and M. Ayhan Kose
It is a sustained period when economic output falls and unemployment rises
"What Is a Recession?"
Stijn Claessens and M. Ayhan Kose
It is a sustained period when economic output falls and unemployment rises
"What Is a Recession?"
Monetary Policy: Stabilizing Prices and Output
Koshy Mathai
Central banks use tools such as interest rates to adjust the supply of money to keep the economy humming
Koshy Mathai
Central banks use tools such as interest rates to adjust the supply of money to keep the economy humming
Fiscal Policy: Taking and Giving Away
Mark Horton and Asmaa El-Ganainy
Governments use spending and taxing powers to promote stable and sustainable growth
Mark Horton and Asmaa El-Ganainy
Governments use spending and taxing powers to promote stable and sustainable growth
Externalities: Prices Do Not Capture All Costs
Thomas Helbling
There are differences between private returns or costs and the costs or returns to society as a whole
Thomas Helbling
There are differences between private returns or costs and the costs or returns to society as a whole
International Trade: Commerce among Nations
Brad McDonald
Nations are almost always better off when they buy and sell from one another
Brad McDonald
Nations are almost always better off when they buy and sell from one another
Real Exchange Rates: What Money Can Buy
Luis Catão
What is the value of a country’s goods against those of another country, a group of countries, or the rest of the world, at the prevailing exchange rate?
Luis Catão
What is the value of a country’s goods against those of another country, a group of countries, or the rest of the world, at the prevailing exchange rate?
Purchasing Power Parity: Weights Matter
Tim Callen
The rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country.
Tim Callen
The rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country.
Capital Accounts: Liberalize or Not?
M. Ayhan Kose and Eswar Prasad
There are both benefits and costs to easing restrictions on capital that flows across a country’s borders
M. Ayhan Kose and Eswar Prasad
There are both benefits and costs to easing restrictions on capital that flows across a country’s borders
Current Account Deficits: Is There a Problem?
Atish Ghosh and Uma Ramakrishnan
There can be consequences when the amount a country spends abroad is wildly different from what it receives from the outside world
Atish Ghosh and Uma Ramakrishnan
There can be consequences when the amount a country spends abroad is wildly different from what it receives from the outside world
Finance
Shadow Banks: Out of the eyes of regulators
Laura E. Kodres
Many financial institutions that act like banks are not supervised like banks.
Laura E. Kodres
Many financial institutions that act like banks are not supervised like banks.
LIBOR: World Reference Point
John Kiff
The London interbank rate is used widely as a benchmark but has come under fire
John Kiff
The London interbank rate is used widely as a benchmark but has come under fire
Banks: At the Heart of the Matter
Jeanne Gobat
Institutions that match up savers and borrowers help ensure that economies function smoothly
Jeanne Gobat
Institutions that match up savers and borrowers help ensure that economies function smoothly
Macroprudential Policy: Protecting the Whole
Luis I. Jácome and Erlend W. Nier
Keeping individual financial institutions sound is not enough. A broader approach is needed to safeguard the financial system.
Luis I. Jácome and Erlend W. Nier
Keeping individual financial institutions sound is not enough. A broader approach is needed to safeguard the financial system.
Markets: Exchange or Over-the-CounterRandall Dodd
How securities are traded plays a critical role in price determination and stability
Financial Services: Getting the Goods
Irena Asmundson
How consumers and businesses acquire financial products such as loans and insurance
Irena Asmundson
How consumers and businesses acquire financial products such as loans and insurance
Economics in Action
Strategic Thinking
Sarwat Jahan and Ahmed Saber Mahmud
Game theory analyzes behavior when decisions must take into account the potential actions of opponents
Sarwat Jahan and Ahmed Saber Mahmud
Game theory analyzes behavior when decisions must take into account the potential actions of opponents
Taxes in Practice
Ruud De Mooij and Michael Keen
It is hard to design a fair and efficient revenue system
Ruud De Mooij and Michael Keen
It is hard to design a fair and efficient revenue system
Inflation Targeting: Holding the Line Sarwat Jahan
Central banks use interest rates to steer price increases toward a publicly announced goal
Regressions: An Economist Obsession
Rodney Ramcharan
A basic statistical tool for distinguishing between correlation and causality
Rodney Ramcharan
A basic statistical tool for distinguishing between correlation and causality
Dutch Disease: Wealth Managed Unwisely
Christine Ebrahimzadeh
When countries experience a sudden large increase in income, the consequences can be harmful
Christine Ebrahimzadeh
When countries experience a sudden large increase in income, the consequences can be harmful
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