11 questions · Economics
Switch on the morning news and the economy arrives in bite-sized headlines: shares are down, the central bank is weighing up the key interest rate, analysts fear a recession. Behind the jargon sit surprisingly simple ideas and once you know them, it becomes clear why one sentence from a central banker can change the monthly repayments of millions of households. Start with companies. In Germany a great many firms are a GmbH, which translates as a limited liability company: the owners are liable only with the company's assets, never their private wealth. Bigger businesses go to the stock market, often via an Initial Public Offering, better known as an IPO. An index such as the S&P 500 then tracks the performance of selected stocks, a quick barometer of market mood. When things go well, shareholders receive a dividend (a distribution of profit) and some firms have paid one without a break for so long that investors call them 'dividend aristocrats'. When a single supplier dominates a market, on the other hand, it is a monopoly, and competition authorities can step in and even block mergers. The wider economy has its own yardsticks. The unemployment rate measures the share of jobless people in the labour force; if output shrinks for two quarters in a row, economists speak of a recession. The central bank's main lever is the key interest rate: raise it and borrowing gets dearer, cooling both the economy and prices. Anyone buying a home feels that directly, because most homes are bought with a mortgage: a loan secured against real estate. Governments, meanwhile, aim for the rare moment when income exceeds spending: a budget surplus, which Germany famously celebrated as the 'schwarze Null'. And the humble cheque, now largely replaced by cards and transfers, has forerunners stretching back to antiquity.
Practise for freePurFact brings every card back right before you would forget it. That's how knowledge sticks.
distribution of profit
A dividend is the part of profit a company pays out to its shareholders. How large it is is usually decided at the annual general meeting.
💡 Did you know? Some firms have paid dividends without interruption for decades: investors call them 'dividend aristocrats'.
recession
A recession is usually defined as the economy shrinking for two quarters in a row. Typical signs are falling output and investment and often rising unemployment.
💡 Did you know? A particularly long, deep recession is called a depression: like the 'Great Depression' from 1929.
share of jobless people
The unemployment rate relates the number of unemployed to all people in the labour force. It is an important indicator of the state of the job market.
💡 Did you know? People not actively looking (e.g. students or pensioners) do not count as unemployed.
performance of selected stocks
The S&P 500 tracks 500 large US companies listed on American stock exchanges and is seen as the benchmark for the US stock market.
💡 Did you know? In 2021 it was expanded from 30 to 40 companies.
loan secured against real estate
With a mortgage, a property serves as security for a loan. If the borrower fails to pay, the bank can sell the property.
💡 Did you know? Most people finance buying a home over decades with such a loan.
key interest rate
The key interest rate is the rate at which banks borrow money from the central bank. Through it the central bank indirectly steers credit costs and inflation.
💡 Did you know? If it raises the rate, loans get more expensive: slowing the economy and price rises.
a single supplier dominates a market
In a monopoly a single supplier dominates the market with barely any competition. It can largely set prices itself.
💡 Did you know? That's why competition authorities monitor markets and can even block mergers.
limited liability company
In a GmbH the owners are liable only with the company's assets, not their private wealth. Founding one requires at least €25,000 in share capital.
💡 Did you know? The GmbH was invented in Germany in 1892 and later copied worldwide.
income exceeds spending
A budget surplus means a government or household takes in more than it spends in a period; the opposite is a deficit, which has to be covered by borrowing or reserves.
💡 Did you know? Germany's federal budget ran a surplus several years in a row between 2014 and 2019: the so-called 'schwarze Null'.
Initial Public Offering
1400
Home · All topics · Legal notice · Privacy · Terms · Contact
