Understand economics from scratch

Chapter 21 How Much Do You Know about the Economic Situation and Government Behavior——Macroeconomics You Must Know (1)
Macroeconomics is also called overall economics and macroeconomics.It is the symmetry of microeconomics.Macroeconomics is a branch of modern economics.Macroeconomics takes the entire national economy as the object of investigation, and studies the decisions and changes of the relevant aggregates in the economy to solve problems such as unemployment, inflation, economic fluctuations, and the balance of payments, and achieve long-term stable development.

A central question in the study of macroeconomics is: How is the level of national income determined?Macroeconomics believes that the level of national income reflects the level of production and employment in the entire society.

As an introductory book, this book will mainly explain basic content such as inflation, currency issuance, national macro adjustment policies, and multipliers.

Inflation: Behind the fact that money is worthless

Since the second half of 2007, inflation has become one of the hottest topics among people. "The price of food has risen, the price of oil has risen, the price of pork has risen, and housing prices have risen even more..." It can be said that the voice is rising.This makes the sensitive people gradually tense up. Offices, vegetable markets, restrooms, buses, Internet forums... Discussions about price increases can be heard everywhere.So, as ordinary people, how should we understand inflation?
Inflation is the relative depreciation of currency.To put it more simply, it means that money is worthless in the short term, and a certain amount of money cannot buy so many things anymore.If in the past, 8 yuan could buy 1 catty of pork, but now it costs 15 yuan to buy 1 catty of pork.Moreover, this phenomenon of rising prices and depreciating currencies is relatively common, that is to say, not only the price of pork has risen, but when you look around and see that the prices of most commodities have risen, it can be concluded that inflation has indeed occurred up.

Inflation is caused by excess liquidity. Generally, during economic prosperity, a large amount of money flows in the market. Both the quantity and the speed of circulation are faster than usual, and the liquidity of currency is greatly accelerated.According to the prevailing economic rules, the total amount of money needed in the market is equal to the sum of the prices of all items in the market divided by the velocity of money flow. When the total amount of money increases, the velocity of money circulation accelerates, and the prices of commodities will rise.This is because a prosperous economy stimulates the confidence of residents, attracts the intervention of capital, and increases the currency.Inflation is generally divided into several types:
(1) Demand-pull inflation, which is the most common type of inflation and the most common.Most inflation is demand-pull, where products are in short supply, prices rise, and currencies depreciate due to overexpansion of demand.For example, in the real estate industry, during the period of economic upswing, due to the increase in demand for self-housing and speculative housing, housing prices have risen. The real estate industry requires relatively large funds and belongs to the leading industry in the economy. The price rise of the real estate industry often drives other industries, resulting in There is a situation of excessive demand in GDP. Regarding this type of inflation, there is a classic story in economics:

When a person buys grain, he thinks that grain is expensive, and the grain seller says it is because flour is expensive; the flour seller says it is because fried dough sticks and bread are expensive; It is too expensive, and they have to increase the price to increase their income; pork sellers say that because live pigs are too expensive, meat is expensive.The old lady who raises pigs said that because food is more expensive, live pigs are more expensive.

This process is cyclical, and it is impossible to find which link is the original source, but it must be caused by excessive expansion of demand. Excessive expansion of one link will cause other links to raise prices, which will lead to price increases in the entire society, perhaps It is caused by the scarcity of food, perhaps because there are fewer pigs, but in any case, the price rise due to the expansion of demand directly drives the price increase of related industries.

(2) Cost-push inflation, which is mainly caused by rising wages.Salary itself has a rigid principle, which can only go up and not fall. It is generally believed that the reduction of wages will dampen the enthusiasm of employees.Due to the strength of trade unions, wages and benefits are often artificially pulled beyond the capacity of society. Due to excessive wages, currency distribution exceeds actual needs, resulting in inflation. This kind of inflation is generally prone to occur in the West, because The trade unions in western countries are relatively independent organizations. They only consider from the perspective of workers, regardless of the social cost of raising wages, which is likely to cause inflation.There is also a sudden increase in procurement costs, and the resulting inflation is also cost-driven. For example, in 1973, due to the joint price monopoly of oil exporting countries, the price of oil rose sharply, forming a worldwide inflation.

(3) Profit-driven inflation, which is mainly due to the increase of corporate profits and the expansion of money demand due to corporate monopoly or joint pricing, resulting in inflation.This kind of inflation is relatively rare and not important.

Although the three types of inflation are different, once inflation occurs, it is often caused by three factors working together.In the past, a product only cost 1 yuan, but now the product has not changed, but the currency has increased, and a product costs 2 yuan.So the original money is worthless, and invisibly, the wealth at hand has shrunk.There is too much money in the market. This may be due to the increase in demand and the increase in investment resulting in a rich currency. It may also be that the profit has grown too fast and the profit is immediately converted into investment and put into the market. It may also be that the bank has extended more loans. currency.When inflation occurs, the salary you earn depends on its purchasing power to calculate the value of your salary.

When inflation happens, you don't notice it, and you obviously feel that prices have risen, which is inflation.Inflation is cyclical. It usually occurs when the economy is booming, and then with the recession of the economy, deflation occurs. When the demand expands, the supply exceeds the demand, and the price rises. After the price rises, there will be oversupply and the price will fall. Demand falls, money demand also decreases, prices are low, and deflation arrives.Contrary to inflation, a product used to cost 1 yuan, but now the amount of money has decreased, or the velocity of money circulation has slowed down, because the total price of goods is equal to the amount of money multiplied by the velocity of money circulation.At this time, a product may only cost 8 cents, and the price is low.

Standard and Minor Currencies: What Real Money Is

The money we see now is basically banknotes and coins.Technically, banknotes and coins are not real money because they are not full value currency.To put it bluntly, they are just a symbol, a symbol of how much "money (face value)" it is worth.

In this way, the concepts of standard currency and auxiliary currency are introduced.The so-called standard currency, also called the main currency, refers to the only legal standard currency in the country that is minted in accordance with the currency unit specified by the state, and has unlimited legal solvency.The standard currency is the most basic currency in circulation in the country, and in China it is the RMB unit "Yuan".

Under the metal standard currency system, the face value and actual value of the standard currency are consistent, that is, the so-called full-value currency.After the abolition of the metal standard currency system, the banknotes issued by the central bank are also called standard currency.Although it cannot be exchanged for equivalent gold at all in circulation, it represents the standard and basic currency in circulation.In China, for example, the renminbi has no legal gold content, is not freely convertible into gold, and is not formally linked (fixed exchange rate) to any foreign currency.

The so-called auxiliary currency, that is, the auxiliary currency of a country's basic currency, is mainly used to assist the circulation of large-denomination currency for sporadic transactions and change.In China, the auxiliary currency is the RMB unit "jiao" and "fen".Secondary coins are generally cast in base metals, and the actual value contained in them is lower than the nominal value, but the state stipulates within a certain limit in the form of laws and regulations.The auxiliary currency has only limited legal compensation, but it can be freely exchanged with the main currency.Auxiliary coins cannot be minted freely, only the state is allowed to mint, and its coinage income is an important source of state fiscal revenue.Under the conditions of contemporary banknotes, auxiliary coins and base metal coins are often marked with the name of the country or can reflect the authority of the country. symbolic.

The standard currency has unlimited legal solvency, and the auxiliary currency has limited legal solvency, so what is unlimited legal solvency and limited legal solvency?

Both unlimited legal solvency and limited legal solvency are concepts in the monetary system.After the government of a country formulates the currency system, it must ensure that the currency is unimpeded in its domestic economic life. To do this, it must stipulate what kind of payment and circulation capabilities the standard currency and auxiliary currency of the national currency have. It reflects the credibility of a country's government.

The so-called unlimited legal solvency, also known as unlimited legal compensation and unlimited solvency, refers to the unlimited legal payment capacity of currency.Unlimited legal solvency is the biggest feature of the standard currency. Regardless of the amount and use of the standard currency, the payee must not refuse to accept it.But the unlimited legal solvency of the standard currency is sometimes "relative".For example, in order to prevent leprosy infection, many countries around the world have isolated leprosy-infected areas and used another special currency.From 1901 to 1928 in Colombia and from 1913 to 1930 in the Philippines, they both issued "coins for leprosy areas".However, leprosy is no longer a terminal illness today, and these sterilized coins have become treasures for coin lovers.

The so-called limited legal solvency, also known as limited legal compensation and limited solvency, refers to the limited legal payment capacity of currency.When the amount of payment in this currency exceeds a certain amount, the recipient has the right to refuse to accept it.Generally speaking, the limited legal repayment capacity is specifically for the secondary currency, but due to the different payment capabilities of the secondary currency in different countries, some countries have limited legal repayment for the secondary currency, but some countries have unlimited legal repayment for the secondary currency.

In my country, the yuan, jiao, and fen all have unlimited legal solvency.The full name of RMB is "People's Bank of China Currency", the basic unit is yuan, 1 yuan is divided into 10 jiao, and 1 jiao is divided into 10 cents, that is, 1 yuan = 10 jiao = 100 cents.At present, the RMB in circulation in the market is mainly the fifth set of RMB, including 100 yuan, 50 yuan, 20 yuan, 10 yuan, 5 yuan, and 1 yuan. There are no corners and cents.The 2 yuan, 5 jiao, 2 jiao, and 1 jiao in the fourth set of RMB are rarely in circulation, but they have not been announced to stop using them, so they are still related to the concept of limited legal compensation and unlimited legal compensation.The first, second and third sets of RMB banknotes have been discontinued.

Unlimited legal solvency and limited legal solvency have practical significance under the metal standard currency system.Because in the final analysis, these sub-coins are undervalued currencies, while the standard currency is a full-value currency, and excessive use of undervalued currencies will inevitably have an adverse impact on the income side.However, under the paper money standard currency system, since the paper money itself has no value, and the right to issue paper money is completely controlled by the central bank, the nominal value of the standard currency and auxiliary currency is higher than the actual value, so at this time the unlimited legal solvency and The distinction between limited legal solvency is of little significance, and what they actually represent is just national credit.

Currency issuance: printing too much will inevitably depreciate

Why does money become less and less valuable?Because there are too many banknotes being printed.So, why does the government print so much money, and what is the basis for printing money?
Long, long ago, people didn't need banknotes, because barter, that is, physical currency, was popular at that time.For example, Zhang San's family couldn't finish the rice, so he wanted to improve the food and eat some meat; while Li Si's family had cattle and sheep, but no grain of rice, so he wanted to exchange the sheep for rice.In the absence of currency as a medium of exchange, there is a realistic demand and feasibility to directly exchange rice and sheep for barter.If the two parties agree to exchange 100 kilograms of rice for 1 adult sheep, then a direct exchange can be carried out at this time.

The barter method is only applicable to the background where the level of productivity development is very low and there are few surplus agricultural and sideline products.With the increase in the quantity of surplus agricultural and sideline products and the increase in the number of commodity exchanges, a special commodity that serves as a medium of commodity exchange has emerged, which is currency.As long as anyone owns this currency, he can use it to buy the goods he needs; on the contrary, anyone can exchange for this currency by selling goods.

The emergence of money turned direct barter into indirect exchange.For example, it used to be that Zhang Sanyun needed 100 kilograms of rice, and Li Si took a sheep and exchanged them according to a certain time and a certain place agreed by the two parties. Now there is no need for such trouble, and you can exchange 1 kilograms of the other party directly with the corresponding currency. rice or 100 sheep too.

In the history of human development, shells, stones, salt, cattle and sheep, cloth, etc. have all served as such currency commodities.However, with the development of the times, people gradually found that it is more appropriate to use gold and silver as currency.Because compared with the above-mentioned currency commodities, gold and silver are smaller in volume, greater in value, more uniform in texture, and are not easy to perish, and are easier to carry, store, and divide.In this way, the historical responsibility of currency has gradually been relatively fixed on gold and silver.

So far, the form of currency has developed from physical currency to metal currency stage, which is a common practice in all countries in the world.Until now, the governments of many countries still use precious metals such as gold and silver as the main currency selection materials, and determine them as the only legal means of circulation; at the same time, base metals such as copper and nickel are used as auxiliary currency selection materials.

Metal currency was originally circulated in the form of lumps (such as gold nuggets, gold bars, and gold ingots). Each transaction needs to be weighed, identified, and divided according to the transaction amount, which is too troublesome.In order to facilitate the transaction, some merchants with large trading volume and good reputation put a mark on it, and use their own reputation to guarantee the weight and fineness of this metal currency.

With the further expansion of the scope of commodity exchange, people need more authoritative institutions to provide guarantees. There is no doubt that the most authoritative institution is the government of a country.Thus, there was a metal block cast in the name of the government, and the rudimentary form of the central bank appeared.

Due to the high cost of metal currency casting and easy wear and tear, especially in the case of bulk commodity transactions, metal currency is heavy, extremely difficult to transport, and unsafe on the way. In this way, banknotes or bank notes instead of metal currency appeared. .

There is no doubt that this substitute currency in the form of banknotes or banknotes must be guaranteed by equivalent metal currency.Only in this way, paper currency holders can exchange for equivalent metal currency anytime and anywhere.

The earliest banknotes were issued by commercial banks with their own credit guarantees. Since the emergence of the central bank, the power to issue banknotes has been transferred to the central bank and has become one of its basic functions, because the government behind the central bank has more credit guarantees. .

In fact, whether the currency issued by the central bank is guaranteed by an equivalent metal currency, no one knows except itself.Therefore, whether it is the issuance of currency notes (banknotes, coins) or bank notes (bank deposit certificates, checks), it is actually guaranteed by the credit of a country's government or central bank.

After World War I, countries successively stopped the circulation of metal currency and the free convertibility of bank notes.Especially when the global financial crisis and economic crisis broke out in the 20s, major industrial countries were forced to abandon the gold standard and silver standard.Since then, there has been no corresponding relationship between bills, bank notes and metal currency, and they have appeared as pure "paper" currency, which is completely dependent on government credit in forced circulation, fully manifested as a kind of credit currency.Undoubtedly, such banknotes not only cannot be directly exchanged for metal currency, but also their actual value must be lower than the currency value.This is the form of currency widely used in various countries at present.

With the further development of computers and networks, represented by various financial transaction cards and electronic wallets, electronic money that used to be collected and paid through banknotes, tokens, and certificates of deposit, but now only needs to be transferred through a computer, appears. Now, the era has entered the stage of electronic currency.

Obviously, since social development has entered the credit currency stage, whether money is "valuable" mainly depends on the government credit; for the world's common currencies such as the US dollar, the euro, and the yen, it still mainly depends on their government credit.

According to the law of paper money circulation, the circulation of paper money should be based on the amount of metal money needed in commodity circulation.The reason is very simple, because only in this way can the nominal value of the 1 yuan denomination banknote match the metal currency value of 1 yuan it represents.If the issuance of paper money exceeds the amount of metal currency, it will cause the currency (paper money) to depreciate.For example, if a certain country needs 1000 billion yuan of metal currency in a certain period, the supply of banknotes issued by it at this time should be 1000 billion yuan.If the government issues 2000 billion yuan banknotes, the amount of metal currency corresponding to 1 yuan banknote is only 0.5 yuan, indicating that the currency (paper currency) has depreciated by 50% at this time.

As far as a specific country is concerned, as long as the government issues a large number of paper money, it can transfer the economic burden through currency depreciation and price rise.In fact, there are indeed many governments that make up for the deficit by directly borrowing from the central bank and issuing public bonds after they have a fiscal deficit.Regardless of the above-mentioned methods, the central bank will be forced to increase currency issuance, causing the money supply to exceed the demand for money in circulation, thereby triggering inflation.

(End of this chapter)