How Does Money Work?

Money has always been one of the most important aspects of human societies. We use it every day to purchase goods and services. We even work tens of hours every week for it. The truth is that our lives revolve around obtaining and using this object.

Money

But how exactly does money work?

Who produces it and who decides its value?

Is it possible to manipulate it to generate changes in an economy?

Let’s find out.

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Introduction to the market: Supply and Demand

In our day to day, it is common to hear about the market and its consequences in our lives. We talk about the market when we complain about price increases, high unemployment rates or the death of a particular company or product. But what is the market? How are prices decided? Is the market always right? Is it fair? Let’s find out.Consumer

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Measuring inequality: Income Quintile Ratio

In the previous article we talked about the Gini coefficient, this coefficient uses the Lorenz curve to indicate the income inequality in a population, and it is the most widely used measure of inequality in the academy. However, other measures can give us a better idea of the inequality in a country by measuring the data in a different way, such as the Income Quintile Ratio.

The Income Quintile Ratio (IQR) is the standard used by the United Nations Development Programme (UNDP) to measure inequality. How does it work?

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Measuring inequality: Gini coefficient

Economic inequality is defined as the difference of several measures of economic welfare among individuals in a population. Inequality tends to have several negative effects on a society such as the loss of social cohesion, rising crime rates, and reduced economic growth. So, how do we solve it?

Inequality

In order to solve a problem we first have to analyze it, and the most used measurement tool for inequality is the Gini coefficient, created in 1912 by the Italian statistician Corrado Gini. Let’s see how it works.

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Quality of life indicators: GPD per capita

The GDP of a country tells us the size of its market and its importance in the world economy. However, it tells us little about how people live in that country. For this, we have to use indicators of quality of life that give us an idea of the situation of the average person in a given country. The most basic and easily calculated indicator of all is GDP per capita.

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Purchase Power Parity

For anyone who has traveled it’s evident that things do not cost the same in different places, lunch is more expensive in New York than in Bangkok. Therefore it is very different the lifestyle of a person earning $ 1000 a month in Thailand compared to someone who earns the same in the United States. To compensate for these differences when looking at data, economists apply something called conversion factor of Purchasing Power Parity (PPP).

ppp
The same amount of money buys different amounts of products in different places.

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Which are the biggest economies in the world?

In the previous article, we learned that the gross domestic product represents the monetary value of goods and services produced in a country, and saw the variables that make up this value. Now we will see which are the countries with the highest GDP and that, therefore, are the big players in the global economy.

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