The Banking Executive Magazine - September Issue 2022

Virtual Economy Alongside these developments, there is a transition from the dominance of intangible assets over tangible assets as shown in Figure 1. From 1975 till 2015 the structure of companies' as- sets included in the S&P 500 turned upside down. In 2015 intangible (vir- tual) assets began to completely dominate, accounting for 87% of as- sets for companies that are included in this stock index. BASIC ECONOMIC PRINCIPLES This section presents the basic eco- nomic principles that can help in un- derstanding the concept of virtual economy and how to build it. MICRO ECONOMICS Micro economics is the social sci- ence that studies the behavior of in- dividuals and firms to better under- stand their decision-making mecha- nisms. It analyzes market mechanisms that establish relative prices among goods and services and how the decisions made affect the utilization and distribution of finite resources. Users interact with each other in the goods market. Producers make up the supply side, and consumers buy- ing their products and services make up the demand side. A market could be competitive and open or monop- olized by a handful of users. MACRO ECONOMICS Macro economics studies how the entire economy behaves. It analyzes interrelations among the different sectors of an economy to better un- derstand how the whole functions. There are two primary areas of re- search in Macro economics: 1.The Business Cycle: understanding the causes and consequences of short-term fluctuations in national income 2.Increasing National Income: un- derstanding what factors decisively affect long term economic growth Macro economics focuses on the way the economy performs as a whole and analyzes factors like out- put, consumption, savings, Gross Domestic Product GDP and infla- tion. A governing body uses these factors to develop economic poli- cies. INFLATION Inflation is the rate at which the prices for goods and services is ris- ing, and therefore, the purchasing power (or intrinsic value) of a cur- rency is falling. Inflation happens when the money supply grows faster than the rate of economic growth. Main causes of inflation are demand growing faster than supply and price rises due to higher costs of produc- tion or raw materials. DEFLATION Deflation is a decrease in the general price level of goods and services. Deflation happens when excess pro- duction occurs, consumption de- creases, or when the money supply decreases. Deflation happens natu- rally over time when the money sup- ply of an economy is fixed. Cryptocurrencies that have a fixed supply will experience deflation. Deflation can cause an increase in unemployment. CURRENCIES A currency is money in circulation that is used as a medium of ex- change. A currency is common within a nation. Cryptocurrencies are common in enclosed digital environ- ments. Cryptocurrency exchanges enable users to change their holdings from one currency to another with- ISSUE 165 SEPTEMBER 2022 the BANKING EXECUTIVE 9