The Brick Wall Economic Theory

What is leakages and injections? Leakages refer to money leaving the economy while injections refer to money entering the economy. The four roleplayers in the economy have a direct impact on leakages and injections in the economy.  Leakages Leakages occur when money gets removed from the flow of the economy. This can happen in three ways: Savings (S) Taxes (T) Imports (M) When people or businesses in the economy choose to keep some of their available income in the form of savings , they withhold that money from entering the economies flow. This is then seen as a leakage because that money gets taken out of the flow and essentially causes that there is less money in the economy. Governments collect money from businesses and consumers in the form of taxes. When they do that they take the money which could have been used to do something else with and continue the flow of the money in the economy. This is seen as a leakage because the taxes that get collected are take...

What is inflation? Inflation is the process of a sustained, significant rise in the general price level over a period of time. Inflation thus lowers the purchasing power of money which means that the real value of the money decreases. For example, something will cost you $10 today but in 10 years, that same product would cost you $13. Inflation There are a wide variety of definitions that can be used to describe the process of inflation. I prefer the definition mentioned above for 3 reasons: 1. The definition is neutral. This definition is formulated on the basic symptom of inflation, price increases. This makes the definition neutral to the things that can potentially cause the price increases. For instance, there is said that one of the causes of inflation is that there is an increase in the amount of money. This some definitions state that inflation is "too much money with too little goods." With that definition, policies that was not created for inflation...

What is the Business Cycle in economics? The business cycle can be described as successive periods of rising and falling economic activities. It can also be called the economic cycle or the trade cycle. A business cycle is measured by the upward and downward movement of the gross domestic product (GDP) and fluctuates constantly. The fluctuations are sometimes bigger than others and vary in length. Business Cycle with trendline The changes in the business cycle is repetitious but not periodic like the phases of the moon. What this means is that after a period where the business cycle moves down it will always be followed by a period that makes the cycle move up. But, the periods at which the cycle moves up or down always differ. A business cycle's length is measured by looking at the distance between a peak and a peak, and a trough and a trough. When the next peaks/troughs are higher than the ones before it, an upward trend can be seen. The same is applied for when th...