In the midst of so much volatility, going through an economic crisis, the survival of a country depends on its knowledge and understanding of the economy. Understanding the basic principles of economics is the key to understanding what is happening around you.
To understand this subject, it is important to understand the basic concepts, such as inflation, interest rate, currency, credit, fiscal deficit and trade deficit.
In this article, we will discuss all these issues in depth, in order to help the reader understand and understand the economy better.
What is Economics
We understand by economy the set of activities developed for the purpose of production, distribution and consumption of goods and services necessary for the survival, maintenance and quality of life of all inhabitants of the world.
The economy is the determining factor for the country's development. It is directly correlated to the financial potential that gives power, creates conditions and sustainability to obtain the best internal infrastructure.
What is Inflation?
Inflation is an economic concept, which aims to describe the constant increase in the cost of goods and services over time, reflecting an increase in the supply of money in the market.
This means that as the quantity of currency increases, each unit of currency has less purchasing power.
Inflation is measured by a consumer price index (CPI). The CPI measures the inflation rate by comparing a set of products with prices established between two periods of time.
The impact of inflation is directly linked to the price of consumer goods, such as the value of the basic food basket and fuel, which weigh heavily on consumers' pockets.
What is Interest Rate?
Brazil's basic interest rate is called Selic (Special Settlement and Custody System). It is defined within a 45-day cycle during a meeting of COPOM (Central Bank Monetary Policy Committee).
It means how much interest the government pays on the values it releases onto the market as public bonds from the National Treasury. Selic is the basic rate for the country's economy and directly influences all other interest rates, such as financing, loans and financial investments.
Selic is the main instrument used by monetary policy to control inflation, that is, if inflation needs to be reduced, the Selic rate increases, increasing the cost of the currency.
The interest rate can be defined as the difference between amounts paid and received during a certain period of time. It is the rate of return that banks and other institutions charge for lending money to their customers. When a bank lends money to its customer, the customer is obliged to pay an agile, or profitability that leads to the definition of interest to be paid at a future date.
The interest rate fluctuates, depending on the amount of volume financed and the duration of the loan.
What is Currency?
Currency is any medium of exchange approved by the government of a country to represent the value of a particular good or service.
Currency goes beyond the physical definition that we know, the metal token, or the paper printed on a special sheet. We consider currency to be any form used to buy and sell goods and services. Different countries use different currencies to make up their exchange rates.
In some countries, the official currency is the dollar, which can be American, Australian, among others, and we have the euro, with the dollar and the euro being the strongest currencies in the world. While other countries like Brazil use their own currency.
What is Credit?
Credit is the loan of money from a creditor (who provides the value) to a debtor (who receives the value). The creditor can be the government, a bank or financial institution. While the debtor can be a company or an individual.
Credit comes with interest rates, as the creditor needs to be rewarded for the period he provides and the risk of not receiving the money back.
Consigned credit is one that has the payment of the installment directly deducted from the payroll of employees duly registered in a Professional Work Card (CPTS) and retirees and pensioners.
What Is a Fiscal Deficit?
A fiscal deficit is when the government spends more than it collects in taxes. The government can finance the deficit through borrowing from the central bank, thereby increasing government debt.
The increase in government debt can have long-term effects, as taxes need to be rebalanced for compensation and tend to increase to finance the debt acquired.
What is a Trade Deficit?
Trade deficit is when the government spends more than it earns in terms of international trade. The difference between imports and exports, that is, this happens when the country imports more than it exports.
As a result, the country needs to exchange its currency for currencies from other countries in order to satisfy its import needs, which increases the cost of the national currency.
Conclusion
The economic concepts mentioned in this article, such as inflation, interest rate, currency, credit, fiscal deficit and trade deficit, are crucial to understanding how a country's economy works.
These concepts are fundamental to help the reader understand what is happening around them in the economic sphere.
So, start studying and applying the basic principles of economics to make the most of the opportunities that the economy offers you.
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