1- The way God created the economy is the free market of demand and supply. There is need or demand for certain good or service and people work to supply this demand.
2- Before the money era people would exchange goods and services with no money or medium of exchange.
3- As people got more sophisticated the medium of exchange as money was created.
4- Ideally this medium of exchange should have an intrinsic value that people would trust as money made of gold or silver.
5- A similar idea is to print paper money with having gold as coverage so to print more money the country has to have more gold.
6- Second to having money economy was not derived mainly by demand but also by supply if you have more money now you want to invest it and the economy expand in this way as well.
7- Expansion of the economy is a good sign that people are producing more and there is increase in wealth as well of the country. The size of the economy is measured by GDP.*
8- How people get money to invest and provide the supply side or borrow to provide the demand side is through banks that lend you with interest rate.
9- Monetary policy is used by federal bank of the countries to affect the interest rate and hence the economy. According to http://www.about.com/ "Expansionary monetary policy is when the Federal Reserve is using its tools to stimulate the economy. This usually means lowering the Fed Funds rate to increase the money supply. This will cause mortgage rates to decline, consumers to borrow and spend, and businesses to grow, thereby hiring more workers who will consume even more. The opposite is contractionary monetary policy."
10- The ideal money is that goes back to the basics that is used to create more needed or demanded products or services. Thus diversity of money in diverse products is beneficial to us and the economy.
11- The bubbles happen when money goes mainly to certain product like the dot coms or houses. People see first some profits and they get greedy about it. Some greed is helpful a lot is dangerous. Then as a lot of money chase these products its values go up. As the real intrinsic value is surpassed people start to feel that these products are overvalued. Their prices start to go down and bubbles start to burst and is usually deflated quickly.
12- The larger the bubble is the more effect in the economy. A large bauble like the houses cause the banks who borrowed money to give to people to buy mortgage to loose money and get into bankruptcy. Similarly the people who paid more in the houses that are getting lower in price lost money. Due to lending to people with no enough wealth they end with foreclosures of houses particularly as the economy or their wages get weaker.
13- When big players of the economy like banks get into bankruptcy people investing in wall street see their money invested in shares of these banks are lost. The trust in the economy and investment becomes low and people try to get their money out of the wall street for fear of more loss. The market go down and money invested in the economy go down and the economy contract.
14- The country try to save wall street by bailing out these companies by the taxpayers money and bonds that we sell it but we have to pay back to the owners of the bonds in the future which means expanding our debt.
15- We have deviated from the simple God economy of demand and supply to the artificial economy of money with no corresponding value but depends on our power and prestige in the world and good luck, monetary policies that difficult to sense the direction of the economy well, the lending of money with interest that people could not afford.
16- The solution is going back to the simple economy of God money should have corresponding gold or other commodities value, no monetary policies but market is derived by demand and supply, lending money with fees not interest rate, amount of lending correspond to credit report, low taxes to all, 2.5% of income or non-used capital to the low income people as the country think what is best.
17- Having money to only few rich people contract the economy and total wealth of the country, while expanding money to more people increase demand and stimulate the economy.
18- Opening new markets as we expand guard against inflation.
*According to wikipedia The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and output for a given country's economy. GDP is defined as the total market value of all final goods and services produced within the country in a given period of time (usually a calendar year). It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is given a money value.
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