Introduction to Economics and Crises

Introduction to Economics

• Economics is defined as fulfilling unlimited desires with limited resources.
• It studies the nature and causes of wealth in nations.
• Economics analyses how societies manage scarce resources.
• Key figures include Adam Smith (1776) and Gregory Mankiw (2020).

The Great Depression (1929-1939)

• Cause: Stock market crash, bank failures, reduced consumer spending.
• Impact: Worldwide economic downturn, high unemployment, deflation, widespread poverty, collapse of international trade.

The 1970s Oil Crisis (1973-1974)

• Cause: OPEC oil restrictions on Western countries.
• Impact: Sharp rise in oil prices, stagflation (high inflation and unemployment), and economic recessions in multiple countries.

The Asian Financial Crisis (1997-1998)

• Cause: Over-speculation in financial markets, currency collapses, large levels of foreign debt.
• Impact: Severe currency devaluation in Southeast Asia, collapse of financial markets, and recession in affected countries (Thailand, Indonesia, South Korea, Malaysia).

The Russian Financial Crisis (1998)

• Cause: Drop in oil prices, excessive foreign debt, inability to control inflation.
• Impact: Russian government default, sharp ruble devaluation, collapse of the domestic banking system.

The Argentine Economic Crisis (1998-2005)

• Cause: Currency devaluation against the US dollar, government debt, economic mismanagement.
• Impact: Hyperinflation, widespread poverty, debt default, and collapse of the banking system.

The Dot-com Bubble (1999-2001)

• Cause: Overvaluation of tech companies, speculative investments in internet startups.
• Impact: Stock market crash, significant wealth loss, and bankruptcy of numerous dot-com companies.

The Global Financial Crisis (2007-2008)

• Cause: Subprime mortgage crisis, excessive risk-taking by banks, collapse of Lehman Brothers.
• Impact: Global recession, massive job losses, government bailouts, collapse of housing markets, and tighter credit markets.

The European Debt Crisis (2010-2012)

• Cause: Excessive government debt in Eurozone countries (Greece, Portugal, Ireland, Spain, Italy), and mismanagement of fiscal policies.
• Impact: Bailouts from the European Union and IMF, austerity measures, political instability, unemployment spikes, and weakening of the Euro.

The Greek Debt Crisis (2009-2018)

• Cause: High government spending, tax dodging, and large public debt.
• Impact: Severe austerity measures, bailouts from the EU and IMF, public protests, and prolonged recession.

The COVID-19 Economic Crisis (2020-2021)

• Cause: Global pandemic, lockdowns, disruption of global supply chains, and decline in consumer demand.
• Impact: Global recession, mass unemployment, business closures, economic stimulus packages, and rise in government debt.

Sri Lankan Economic Crisis (2022)

• Cause: Foreign exchange crisis, foreign debt default, inflation, and political instability.
• Impact: Food shortages, power outages, fuel shortages, widespread protests, and mass migration.

Pakistan's Economic Crisis (2023)

• Cause: High public debt, foreign exchange crisis, inflation, and political turmoil.
• Impact: Currency devaluation, inflation, rising import costs, and loss of purchasing power.

Scarcity

• Human wants for goods, services, and resources exceed what is available.
• A reminder of the real-world limitations of resources.

Economics and Human Behavior

• Economics involves understanding human behavior, particularly when rational assumptions do not apply.
• Learning from behavioral biases helps predict real-world situations, rational or not.

Major Divisions of Economics

• Microeconomics: Focuses on individual units (consumers, firms, industries).
• Macroeconomics: Studies the economy as a whole, examining aggregate indicators (national income, unemployment, inflation).

Most Powerful Force

• Invisible Hand: How self-interested individuals can unintentionally benefit society, through price mechanisms.

Demand and Wish:

• Demand: The willingness and ability to purchase a good or service at a specific time and price. Requires: willingness, ability, specific price and good availability.

Law of Demand

• Relationship between the price of a good and the quantity demanded. A graph showing negative correlation - higher price, lower demand.

Supply

• Total amount of a good or service available at a specific price and time.

Law of Supply

• Relationship between price of a good or service and the amount available from producers. A graph showing a positive correlation - higher price, higher supply.

Market Equilibrium

• Supply and demand are equal, leading to a stable price.

Law of Diminishing Marginal Utility

• Diminishing satisfaction from consuming additional units of a good or service. A graphic showing downward curve.

Opportunity Cost

• Value of the next best alternative foregone when a choice is made.

Major Branches of Economics

• Development Economics
• International Trade
• Monetary Economics
• Mathematical Economics
• Financial Economics
• Environmental Economics
• Issues in Pakistan Economy
• Institutional Economics
• Public Economics
• Statistical Method in Economics
• Econometrics

Development Economics

• Studies the economic aspects of development; including poverty, inequality, market failure and hurdles in growth. Also, includes improving fiscal and social conditions.

International Trade

• Studying the exchange of goods and services between nations.

Monetary Economics

• Studies money, its role in society, and its functions.

Mathematical Economics

• Utilizing mathematical tools to analyze economic theories and problems.

Financial Economics

• Analyses the use and distribution of financial resources in markets.

Environmental Economics

• Studies the economic impact of environmental policies.

Issues in Pakistan Economy

• Analyzing economic problems and their impact in Pakistan.

Institutional Economics

• Examines the influence of institutions on economic actors' (people or businesses) behavior.

Public Economics

• Studies government policies from an efficiency and equity perspective.

Statistical Economics

• Studying economic data via data collection, processing, and numerical analysis.

Econometrics

• Analyzing the stochastic relationships between economic variables, using data and mathematical/statistical tools to test hypotheses, make predictions.

This quiz covers fundamental concepts in economics, including the nature of wealth, resource management, and key historical events like the Great Depression and the 1970s Oil Crisis. Test your understanding of how these crises shaped global economies and the role of influential economists. Prepare to explore the causes and impacts of major economic events.