U.S. Economic Growth Slows Amid Tariff Pressures: A 2025 Outlook

-
📉 U.S. Economic Growth Slows Amid Tariff Pressures: A 2025 Outlook As 2025 unfolds, the U.S. economy is showing signs of strain amid a global slowdown and heightened trade barriers. Here's a detailed look at the latest forecasts and implications based on insights from the OECD, Federal Reserve, and key market indicators . 📊 1. U.S. Growth Forecast Downgraded by OECD The Organisation for Economic Co-operation and Development (OECD) has revised the U.S. GDP growth forecast for 2025 to 1.6% , down from 2.8% in 2024 . The forecast for 2026 remains muted at 1.5% , reflecting persistent uncertainty driven by: Elevated trade barriers Reduced consumer spending power Sluggish business investment 💸 2. Tariffs Fueling Inflation & Trade Costs The average U.S. tariff rate has climbed to 15.4% , the highest level since 1938 . These tariffs have raised import costs, which are now being passed on to consumers: Projected consumer price inflation is expected to rise to...
Post a Comment

Inside Banking: Unraveling Money Creation and the Role of Central Banking

-

Banking lies at the heart of modern economies, playing a pivotal role in the creation and management of money. From facilitating transactions to regulating the money supply, banks and central banks wield significant influence over economic activity. In this post, we'll take a closer look at the inner workings of banking, exploring the processes of money creation and the crucial role of central banking.

Money Creation: The Banking Magic

Contrary to popular belief, banks do not simply lend out the deposits they receive from customers. Instead, they engage in a process known as money creation through the extension of credit. Here's how it works:

  1. Fractional Reserve System: Banks are required to hold only a fraction of their deposits as reserves, typically with a central bank. This allows them to lend out the majority of deposited funds while maintaining the ability to meet withdrawal demands.

  2. Lending and Deposits: When a bank extends a loan to a borrower, it effectively creates new money in the form of a deposit in the borrower's account. This newly created deposit can then be used for transactions and circulated within the economy.

  3. Multiplier Effect: As these newly created deposits are redeposited in other banks or spent in the economy, they serve as the basis for further lending and deposit creation, leading to a multiplier effect that expands the money supply.

Money creation by banks plays a crucial role in stimulating economic activity, fueling investment, and facilitating economic growth. However, it also poses risks, such as potential overexpansion of credit and financial instability.

Central Banking: Guardians of the Money Supply

Central banks, such as the Federal Reserve in the United States or the European Central Bank, serve as the guardians of the nation's money supply and the stewards of monetary policy. Their roles and responsibilities include:

  1. Monetary Policy: Central banks control the money supply and interest rates to achieve macroeconomic objectives such as price stability, full employment, and economic growth. They use tools like open market operations, reserve requirements, and discount rates to influence economic conditions.

  2. Banking Supervision: Central banks oversee the banking system to ensure its stability and soundness. They regulate banks, conduct stress tests, and provide liquidity support during times of financial stress.

  3. Lender of Last Resort: Central banks act as lenders of last resort, providing emergency funding to banks facing liquidity shortages to prevent systemic financial crises.

Conclusion

Money creation by banks and the role of central banking are central components of the modern financial system. By understanding these processes, individuals gain insights into the mechanisms that drive economic activity and shape monetary policy. As we navigate the complexities of banking and central banking, a deeper understanding empowers us to comprehend the dynamics of the economy and the policies that influence it.

Comments

Post a Comment

Popular posts from this blog

The law of diminishing returns states

-
What is t he law of diminishing returns ? The law of diminishing returns states that as additional units of a variable input are added to fixed inputs, the marginal product of the variable input declines after a certain point. This observation was first made by the British economist David Ricardo in the context of agriculture in nineteenth-century England, where successive doses of labor and capital yielded smaller increases in crop output.  Diminishing returns also apply to manufacturing when a firm starts to exceed the capacity of its existing plant. Example of crop yield for  t he law of diminishing Let's say a farmer has a fixed amount of land, let's say one acre, and they want to grow corn. They start by planting 100 seeds, and with the help of a fixed amount of fertilizer and water, they get a yield of 100 bushels of corn. If the farmer decides to increase the number of seeds planted to 200, they might see a corresponding increase in yield to, say, 180 bushels. However, ...
Read more

Highlights – June 2025

-
  📰 Current Affairs Highlights – June 2025 A Curated Overview of This Month’s Key Developments Here’s a concise roundup of major news and policy updates for June 2025 that matter for readers interested in national developments, governance, finance, and international trends. 📌 1. June 2025 Examination Trends – Focus on Global Affairs Recent competitive examinations have seen a clear trend: a strong focus on current global affairs and economic concepts . Key international topics covered : BRICS , NATO , Asian Development Bank (ADB) , European Union , International North–South Transport Corridor (INSTC) COP 28 and global climate cooperation Economic knowledge tested : Basics of Fiscal Deficit , GDP calculation , and government finance metrics. 🔍 Insight : Staying updated on global institutions and national economic data is increasingly important, not just for academics, but for awareness of how global policies shape domestic affairs. 📌 2. RoDTEP ...
Read more

Sustaining Momentum: Insights into India's Economic Growth Trajectory

-
  Introduction: The Indian economy has demonstrated remarkable resilience, showcasing a robust growth trajectory amidst global uncertainties. With a GDP growth rate of 7.6% in FY 2023-24, surpassing the previous fiscal year's figures, India continues to stride forward, propelled by key sectors such as construction and manufacturing. Growth Drivers: The construction sector emerged as a standout performer, achieving a commendable double-digit growth rate of 10.7%, while the manufacturing sector exhibited strong growth at 8.5%. These sectors have been pivotal in driving economic expansion, creating employment opportunities, and fostering infrastructure development. Quarterly Performance: In the third quarter of FY 2023-24, the Real GDP witnessed a notable uptick, registering a growth rate of 8.4%. This uptrend underscores the resilience and underlying strength of the Indian economy, buoyed by strategic policy interventions and dynamic business environment. State Ambitions and Realitie...
Read more