How An Economy Grows And Why It Crashes [III]

In the second stage, the number of residents on the island has increased, the social infrastructure has gradually improved, banks and water companies have been set up in succession, using fish as currency, transactions have become easier, the prices of various products and services have become cheaper, and the people on the island have become richer and richer. “Fish Reserve Voucher” is a token that can be exchanged for fish at any time. It is popular with islanders because it is easy to carry and not easy to deteriorate. Trading and trade not only took place within the island, but also with other countries around it. In this way, a republic was born and elected its own parliament.

From this book, I learned that the loan interest rate determines the interest that banks can pay to depositors and that the periodic interest rate is conducive to market stability depends on three factors: the desire of banks to maximize self-harm returns, the concern of banks about the loss of high-risk investment, and the time preference of individual consumption.

At the same time, I also connected with the trade knowledge I learned from microeconomics. Trade is the best way to maximize benefits between countries. Everyone, each country or island will use their own advantages to maximize their interests, that is, opportunity cost. According to the AP book, the opportunity cost refers to the maximum benefit from the production of other products that are abandoned when certain economic resources are used to produce certain products. (In this way, we can trade with each other, like small drums and dancing islands. One is that there are many small drums and the other is that there are many sunscreen coconut oil. In the exchange, both islands will benefit)

In addition, this book also mentions inflation, which gives me a deeper understanding of inflation. For example, I know that when the economy is sluggish, people will choose to stop consumption. Once this happens, demand will fall and prices will fall.

Fiat money: In Chapter 9 of Macroeconomics, the meaning of money explains two kinds of kinds of money (community money and fiat money). Fiat money means money without intrinsic value, just like US dollar, Coins, check deposit.