Economics and Investments The Investor's Playbook

By Ary S. Jr.

The book begins by demystifying economic principles, making them accessible to readers of all backgrounds. Ary S. Jr. provides a clear understanding of economic cycles, market trends, that shape financial landscapes.

• Language: English
• Publisher: Ary S. Jr
• Release date: Nov 13, 2023
• ISBN: 9798223402824

Ary S. Jr.

Ary S. Jr. is a Brazilian author who writes about various topics, such as psychology, spirituality, self-help, and technology. He has published several e-books, some of which are available on platforms like Everand, Scribd, and Goodreads. He is passionate about sharing his knowledge and insights with his readers, and aims to inspire them to live a more fulfilling and meaningful life.

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Economics and Investments

The Investor's Playbook

Introduction

Economics is a social science that studies how people allocate scarce resources to satisfy their unlimited wants and needs. It is concerned with the production, distribution, and consumption of goods and services, and the choices that individuals, businesses, governments, and nations make to allocate resources. The study of economics is divided into two branches: microeconomics and macroeconomics.

Microeconomics focuses on the behavior of individuals and firms in making decisions regarding the allocation of resources. It analyzes how individuals and firms respond to changes in price and why they demand what they do at price levels. Microeconomics also studies how goods are valued differently, how individuals make financial decisions, and how they trade, coordinate, and cooperate. Within the dynamics of supply and demand, the costs of producing goods and services, and how labor is divided and allocated, microeconomics studies how businesses are organized and how individuals approach uncertainty and risk in their decision-making.

Macroeconomics, on the other hand, is concerned with the behavior and performance of an economy. It focuses on recurrent economic cycles and broad economic growth and development. It studies foreign trade, government fiscal and monetary policy, unemployment rates, the level of inflation, interest rates, the growth of total production output, and business cycles that result in expansions, booms, recessions, and depressions. Using aggregate indicators, economists use macroeconomic models to help formulate economic policies and strategies.

Investment, on the other hand, is the addition to the capital stock of the economy, such as factories, machines, or any item that is used to produce other goods and services. Investment is not the same as saving money in a bank, which is not considered investment in economic terminology. The value of capital stock depreciates over time as it wears out and is used up, which is called depreciation. Gross investment measures investment before depreciation, while net investment measures gross investment less depreciation. Depreciation accounts for three-quarters of gross investment.

Investment can be in either physical capital, such as machines, or human capital, such as better education to increase labor productivity. The rate of return for an investment project is known as the marginal efficiency of capital. The cost of capital or investment is related to the rate of interest for two reasons: the rate of interest shows the cost of borrowing money to fund investment, and the alternative to investing is saving money in a bank, which is the opportunity cost of investment. If the rate of interest is 5%, then only projects with a rate of return of greater than 5% will be profitable.

There are several factors that shift the planned investment schedule, such as a change in the cost of capital, technological change, expectations and business confidence, government policy, and the supply of finance. In an economy, the interest rate will be determined by the supply of finance (loanable funds) and the demand for loanable funds. The supply of finance is the level of savings in the economy. When people deposit money in banks, these funds can be lent out to firms for investment in physical capital. Higher interest rates will encourage people to save more. Saving will also be dependent upon incomes and confidence, which could shift the supply curve. A shift in the supply or demand curve will cause a change in the level of interest rate. An increase in demand for the loanable fund will cause a shortage of funds, which will cause interest rates to rise and therefore encourage an increase in saving.

The history of economics dates to the Bronze Age (4000-2500 BCE) when societies in Sumer and Babylonia developed notation systems using markings on clay tablets, papyrus, and other materials to account for crops, livestock, and land. These accounting systems, arising in tandem with written language, eventually included methods for tracking property transfers, recording debts and interest payments, calculating compound interest, and other economic tools still used today.

In the 14th century, Tunisian philosopher Ibn Khaldun was among the first theorists to examine the division of labor, profit motive, and international trade. In the 18th century, Scottish economist Adam Smith used the ideas of French Enlightenment writers to develop a thesis on how economies should work. In his book The Wealth of Nations, Smith argued that the invisible hand of the market would lead to the most efficient allocation of resources. In the 19th century, Karl Marx and Thomas Malthus