The importance of understanding the economy is not limited to a handful few of the intelligentsia. Economy affects all of us. The rising inflation and the spike in fuel prices have affected economies across the globe. In a free market economy like America, inflationary pressures are high because of the high liquidity in the money markets. As a result we see, whenever there is a spike in inflation the Federal Reserve rushes in to reduce the Interest rates. This helps to suck liquidity away from the markets and reigns in inflation. It would be interesting to know that economy is based on the demand and supply ratio which drives prices up and down. All other factors are related to these broader factors.



In a closed economy like Cuba, inflation will be relatively lower because liquidity in the markets is also relatively lower. However, a closed economy like Cuba and to some extent China is not immune from the effects of inflation. In a mixed economy like India, the effects of inflation are visibly seen. The rate of inflation has climbed steadily for many months and by mid 2008 was hovering around 13%. The Government is doing all it can to help control inflationary pressures, but hundreds of millions of poor India and other open developing economies are reeling. As we see here it is important for all of us to understand economic systems and the effects of global events on the economies of all countries.

Some of the present events of the global economy are driven by the subprime crisis in the United States and rising oil prices. Oil prices have been rising for a decade and peaked in 2008 at $140. This had led to a chain reaction across the globe. If we are aware of the economics we will be better equipped to take informed financial decisions. This will help us to plan our investments better. There are various sources which will help us to gather information. The Internet is one of the most potent sources to gather data, and as we all know the digital economy has been a key shaper of the economy at large.

Governments and economists around the world are implementing policies to bring relief to the perilous situation prevailing globally. We know how the Fed had bailed out Bear Sterns and how they are planning to bail out Fannie and Freddie. Financial institutions like Citi, UBS, Merrill and Lehman have written off billions of dollars as bad assets. However, skeptics believe there are more skeletons hidden in the cupboards which can come out any time. As citizens of our country we must be aware of the economics of our country. This will help us to quickly react to any economic news such as sudden rise is domestic gas prices or the hike in air fares. In today's global economy no one can remain isolated from the impacts of global economy. At some level, all of us will be affected. So, it is wise to browse through the important economic events across the globe and immune ourselves to some extent from the effects of inflation.

Using a dictionary of economic terms is a vital daily resource in building this understanding.