Economics

Since the end of World War II, the United States has experienced almost continuous inflation— the general rise in the price of goods and services. It would be difficult to find a similar period in American history before that war. Indeed, prior to World War II, the United States often experienced long periods of deflation. It is worth noting that the Consumer Price Index (CPI) in 1941 was virtually at the same level as in 1807.

It is already apparent from this brief overview that the subject of economics is a very broad one. Just as the study of the physical world is divided into fields such as physics and chemistry, economics is likewise divided into fields comprised of closely related topics.

The two major fields of economics are microeconomics and macroeconomics. Since the second is the subject of this book, let's take a minute to review what microeconomics is about.

Imagine that you are the president of Blue Skies Airlines, Inc. and you have decided that Blue Skies should buy a new Boeing 777. The plane will cost $125 million and change. There is one small problem though. Blue Skies only has a few million dollars in its bank account, and those funds are needed to pay fuel bills and the salaries of its employees.

How can Blue Skies get enough money to buy this new airplane? It can by tapping into the savings flows of the economy, and this chapter explains how that actually happens.

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