Category: Macroeconomics

Michelle Cheng Cin Min, age 12 years old from China, IAEA Children's Paintings Competition 2007

Khazzoom-Brookes Postulate: the debate goes on

There is no consensus about the relationship between energy efficiency and energy use and the topic is still highly contested. Some argue that energy efficiency improvements might increase the consumption of energy. This effect is known as the Khazzoom-Brookes Postulate.   According to Euractiv, “This effect takes place when the energy savings produced by the measure are taken back by consumers in the form of higher consumption. An example: a household, which has made big energy savings over the year might, at the end of the year, decide to buy a new car with the money they saved. It is...

Photo: Three Lions / Getty Images

Inflation: when the money dies

  Consider country X as a fictional country. The economy of this country has all the characteristics of a normal economy: Markets trade goods, individuals take part in financial affairs and institutions regulate the process of business in different sectors. Two decades ago in this country people used to buy chocolate for 2$ apiece. These days, however, people pay $3.5 for a bar of chocolate. This increase in price makes people to either pay more for the same amount of quantity that they used to buy, or to buy fewer amounts with the same amount of money. To explain this,...

Foreign Exchange Rate, (Photo by Carl Court/Getty Images)

Foreign Exchange Rate

  Inside the borders of a country, goods and services are traded with that nation’s currency. However, to trade goods and services with other countries, foreign currencies are needed. Foreign exchange rate is the amount of home currency units that are to be paid to obtain a single unit of a foreign currency. To put it simply, an exchange rate is the relative price of two currencies. In economic literature, there are two different concepts of foreign exchange rate. The main difference between these two concepts are the usuage of inflation in their structure. Nominal Exchange Rate refers to the...

Monetary Policy

Monetary policy is the actions taken by the central bank of a country to manipulate liquidity, i.e. the amount of money available in the economy. Such actions include modifying the interest rates, bank reserves, etc. To illustrate, let’s suppose that you have the responsibility of controlling the market of a certain product in a country. In this market, manufacturers have a certain rate of production capacity. Furthermore, you can control and change the amount of money that buyers have and therefore you can affect their purchasing power. If you aim to empower the market of the country, you must take...