EconomyEinstein

What is LIBOR? It's the London Interbank Offered Rate and it's a daily reference rate based on the interest rates at which banks borrow unsecured funds from banks in the London wholesale money market.

Want to get a great indicator of when the credit markets will be back in reasonable shape? Just keep checking the TED spread! Here it is below.

The "invisible hand" is a concept coined by economist Adam Smith. He posited that when people act in their own self interest that they also promote the good of the community as a whole. He only used the term three times but it was enough to take off and become part of the econ-lexography.

What of the constraints in making good choices, economically speaking? There are a few, specifically regarding resources, technology, time and moreover there is the issue of opportunity cost.

Does it get easier than this? Cost-benefit analysis is easy: what is it going to cost me to do X activity. Although it's good for all or nothing style decisions, it doesn't do much beyond that. Marginal utility is a concept that can not only tell you whether or not I'll eat pizza but also how much I will eat.

If you just paid $10.00 to participate in the all you can eat buffet, how much should you eat? Most people would say $10.00 and that answer is wrong.

Let's say that you would drive to the next town to buy groceries. You know from experience that the same items bought every week cost you $200.00 locally, but the superstore in the next town, a 30 minute drive, can give them to you for $180.00. That's a savings of 10%! Now let's say that you need a new washer and dryer. Locally the cheapest deal is $2,000 but an appliance store in another town (also 30 minutes away) has it for $1,900. That's a savings of only 5% percent so you decide that you're just going to buy it locally. Good decision?

You hear the term GDP but what is it? GDP is an acronym for Gross Domestic Product and it's one measure of a given country's national income and output.

In the equation constructing the GDP ( Y = C + I + G + NX ), the "C" stands for consumption. The consumption variable refers to expeditures made by households on goods and services produced both in the U.S. and abroad.

In the equation constructing the GDP ( Y = C + I + G + NX ), the "I" stands for investment. Capital is extremely important to a country's ability to make output. A country's capital increases as more things are bought.

In the equation constructing the GDP ( Y = C + I + G + NX ), the "G" stands for government. A huge amount of GDP is spent by government, even more in Europe!

In the equation constructing the GDP ( Y = C + I + G + NX ), the "NX" stands for net exports. When domestically produced products are sold in other countries, those products are classed as exports. When a consumer in the U.S. buys a product produced in another country, those products are classed as imports. To obtain the net export number you merely total up exports, total up imports and subtract your import total from your export total. "NX" is that figure.

Politicians constantly push trade tariffs and exchange rate controls, both of which are targeted at, and affect, international trade. The effect of these controls ultimately resound through domestic economies. Is NX < 0 a bad thing? Not necessarily.