Economy & Rates: key terms, formulas and examples
Global economics links currencies, interest rates, inflation and investment. Exchange rates change what trade costs, and foreign direct investment means building abroad.
Example
A weaker home currency makes your exports cheaper abroad.
Takeaway
Hedge currency risk and watch central bank rates.
Key terms
- GDP
- Total value of goods and services a country produces in a period.
- Recession
- A period when the economy shrinks and jobs and sales fall.
- Interest rate
- The price of borrowing money, shown as a percentage.
- Inflation
- A general rise in prices that reduces what money can buy.
- Monetary policy
- Central bank actions on interest rates and money supply to steer the economy.
- Deflation
- A general fall in prices that raises money's buying power.
- Globalization
- The growing connection of economies and cultures.
- Currency devaluation
- A deliberate drop in a currency's value.
- Foreign direct investment
- An investment to own or run a business abroad.
- Balance of payments
- A record of money entering and leaving a country.
- Emerging market
- A fast-growing economy that is still developing.
- Purchasing power
- How many goods a unit of money can buy.
- Foreign exchange market
- Where currencies are traded.
- Developed economy
- A wealthy, industrialized economy.
- Remittance
- Money sent home by workers abroad.
- Sanctions
- Penalties used against another country.
Formulas
Simple interestP × r × t
Real GDPNominal GDP ÷ Deflator × 100
Inflation rate(CPI new − CPI old) ÷ CPI old × 100
Unemployment rateU ÷ LF × 100
GDP per capitaGDP ÷ N
Budget deficitG − T
Debt-to-GDPD ÷ GDP × 100
Currency conversionA × rate
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