Introduction To The National Economy

A committee of nine people meets in a room, votes, and announces a number. Within hours the cost of every mortgage, every business loan and every overdraft in the country has moved, and so has the reward for leaving money in a savings account. Nobody was ordered to spend less or invest more. One price changed, and the whole economy leaned.

This lesson introduces the two levers that reach every household and every firm at once: the interest rate, and the government's own income and spending. You will learn what an interest rate actually is and how a change in it pulls consumers between saving, borrowing and spending, and firms between saving, borrowing and investing. You will also meet the arrangements used in sharia compliant finance, where charging interest is not permitted. Then you will turn to the government's accounts: where its money comes from, where it goes, and why two taxes that raise the same amount can fall very differently on rich and poor.