It was mentioned (in part 2) that a currency-issuing government issues its currency in the act of spending. An implication of this is that a currency-issuing government does not need income in order to spend. We have also noted (in parts 5 and 9) that a household or business can spend independently of current income. They can do this either by drawing down past savings or through borrowing.
Category Archives: Short & Simple
Short & Simple 9 – Spending Determines Income
We understand that, as a rule, total spending must equal total income (this was explained in part 4 of the series). But this raises a question. Is it spending that determines income or, instead, income that determines spending?
Short & Simple 8 – Measuring GDP
In part 7, we arrived at a fundamental National Accounting identity:
GDP = Total Output = Total Income = Total Spending
This identity suggests various ways of measuring GDP.
Short & Simple 7 – A Fundamental National Accounting Identity
A prominent flow measure for the economy as a whole is Gross Domestic Product (GDP). This is a measure of the total output produced within the domestic economy over a year.
Short & Simple 6 – Stocks and Flows
The economist Michal Kalecki once joked that economics is the science of confusing stocks and flows. These two concepts are important, but easy to mix up.
Short & Simple 5 – Uses of Household Income
The rule that total spending equals total income is very important, but only true for the economy as a whole. It is not true for individual households, businesses or sectors of the economy. Here, we consider a household.
Short & Simple 4 – Total Spending Equals Total Income
Short & Simple 3 – Safeguarding Monetary Institutions and Banking
Short & Simple 2 – Establishing a National Currency
For government to carry out its functions, it needs to employ some people and obtain various resources.
Most national governments coordinate the division of resources between public and private use through the operation of a currency that they themselves issue.
A national currency can be established through a few steps.
Short & Simple 1 – Government as a Means of Cooperation
Many activities require cooperation at the society-wide level.
As a community, we need to agree upon a set of rules and regulations, and arrange for their supervision and enforcement.
Questions that arise include:
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