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How the Federal Reserve Increases Money Supply

To understand how the Federal Reserve increase money supply, it is important to first understand the meaning of money supply, which we will think of as: money which is available (in the economy) for use.

Second, you must remember the three parties that influence the money supply:

  1.  The Federal Reserve
  2. Banks
  3. Households that deposit money

It will be easier to understand money supply if you remember that the word “reserve” implies not available to use, so it will help to notice when “reserve” appears as we’re talking about decreasing the money supply.

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List of Economic Indicators to Guide Your Investment Decisions

Economic indicators are useful in telling us whether the economy is doing well or not.  They indicate whether an economy is heading in or out of a recession, or if the economy is experiencing a boom.  There are a lot of economic indicators and sometimes they may contradict one another.  Thus, it is important to look at the overall economic environment using multiple indicators to get a clearer picture of how the economy is doing. The following is a list of 27 economic indicators you can use to make investment/business decisions.  

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Real Interest vs. Nominal Interest: What’s the Difference?

Start talking about money and interest rates come into the equation.  Get a mortgage, buy a house, or get an auto loan—you will hear about interest rates.  But what you may not know is that the interest rate referenced most of the time is the nominal interest rate, and not the real interest rate.  So what is the difference between real versus nominal interest rates?

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What is the Business Cycle and How Does it Work?

The business cycle affects everyone, from the busy banker to a simple utility worker. These two words mean a lot in daily broadsheets because the effects can be tremendous enough to shake the entire stock market and bring people out of job. What actually is a business cycle and how does it work? If it is a cycle, can it be predicted? What are the important characteristics we should know about?

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What Happens When Gold Prices Drop

Although gold is no longer a standard form of currency in the vast majority of countries, it is still of extreme macroeconomic importance. The price of gold is tied to many currencies and currency pairs. Here is what happens to the major currencies when gold prices drop:

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How Does the Forex Market Work?

The foreign exchange market, most commonly known as the Forex market, is home to the global decentralized trading of international currencies–specifically where trillions of U.S. dollars are traded each day. If you need Japanese yen, you buy it through the Forex market. Participants trade not in one huge platform but rather through electronic communication networks (ECNs) or phone networks in different markets across the globe. Dubbed by as the largest financial market in the world, the forex market works round the clock five days a week: from Sunday (5 p.m. EST) to Friday (4 p.m. EST). It is also the most fluid and most accessible market because of its scope and size. But how does this huge market really work? And why is there a need to trade currencies?

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Recessions in the US Since the 20th Century and What Caused Them

Recession is defined as the deterioration of a country’s economic activity for two successive quarters. The United States, although widely considered as an economic power, has not been immune to the scourge of recession. In fact, the nation has experienced a number of economic setbacks since the beginning of the 1900s. Here are the various instances of recession that took place in the US since the start of the 20th century and the reasons why they happened.

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Can You Make Money in the Stock Market?

Can you make money in the stock market? Or is it all just one big gambling scheme? The short and unequivocal answer is: yes can make money in the stock market. Otherwise, happenings at the New York Stock Exchange won’t make any difference on day-to-day economic events. You may have already learned from history that stock investment has been the more productive way to park your money compared to, for instance, bond investment. Even with a very volatile stock market or amidst a period of recession, the market continues to lure investors.

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How Interest Rates Work

If you want to purchase something now but do not have the cash to spend, what you can do is to borrow it. This borrowing does have a cost though, it is called interest. It is an amount that you have to pay on top of the money you have loaned– the principal amount. The rate of interest is often expressed as an annual percentage of the principal. To illustrate, if you have borrowed $1,000 with an interest rate of 10 percent per year payable after a year, you will pay a total amount of $1100 at the end of the year. Loans can be short term or long term, hence the borrower is said to pay either short term interest rates or long term interest rates.

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Annual Inflation Chart

What is Inflation and How Does it Work?

Inflation affects people from all walks of life–quite significantly that even your entire retirement fund can suffer if there is an unprecedented rise in inflation rate. Inflation shows how the value of money decreases over time. While it is often seen as economic, it can in fact be as real as the size of a hamburger that you eat for lunch. Read on to learn more about this very important concept.

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