Economic Institutions

Definition

Economic institutions are structures created by societies to control economic activities. They include banks, stock exchanges, labor unions etc., which regulate how money flows within an economy.

Analogy

Imagine economic institutions as traffic lights in a city. They guide and regulate traffic flow (money flow) ensuring everything runs smoothly without crashes or jams.

Related terms

Monetary Policy: The policy adopted by the monetary authority of a country that controls either interest rate payable on very short-term borrowing or money supply. It's like adjusting traffic light timings based on rush hours or off-peak times.

Capitalism: An economic system characterized by private ownership of goods and services for profit. It’s similar to a city where drivers (business owners) are free to choose their routes and destinations (market choices).

Central Bank: An institution that manages a state's currency, money supply, and interest rates. It’s like the traffic control center overseeing all the traffic lights in the city.