Business cycles affect the economy of any nation-state. The theory behind economics is that a state’s economy grows when the resources available to a state’s economy are increasing, while declining when the same resources are decreasing. An economy is a space of interaction among producers, distributors, users and investors. In short, it’s defined as the practices, discourses and material exchanges associated with the productive use and management of physical assets.
There are two main concepts of economics that are often confused or taken for granted. These concepts are consumption and production. Consumption refers to the total income produced in a period of time, while production pertains to the total value of all production carried out over time. Economists use these concepts to determine the state of the economy.
One way of measuring the state of the economy is to compare current gross domestic product (GDP). The GDP is calculated based on the value of all production of all products consumed by the population of a nation-state. Consumption refers to the goods and services that people use everyday. Production refers to the capacity of a nation-state to produce the goods and services it consumes. The calculation of consumer spending, producer spending and investment, and government spending take these three components into account.
The process of economics is also characterized by the market mechanism. This is where economic activity takes place on the financial markets. The process is essential for the functioning of any economy since any financial institution can be either a lender or a dealer. Without the intervention of financial markets, there would be no efficient economy since all transactions would be solely determined by supply and demand.
The role of financial intermediaries in any economy is important. The function they play in any economy depends on the scale at which they perform their tasks. Large banks handle large amounts of money and play a major role in economic activity. Lenders provide small loans to businesses and individuals. Businessmen and individuals make purchases of goods and services with these loans. Financial intermediaries facilitate the overall process of economic activity.
A major part of economics is the techniques used by economists to examine the performance of an economy. A wide range of techniques are used in this area. Some of these techniques have become so common that they are considered routine by most economists. These include the concept of macroeconomic statistics, macroeconomic indicators, market economics, decision sciences, economic growth, output growth, investment and productivity management techniques, technical progress, international trade, balance of payments, monetary policy, and business cycles.
One of the most important concepts in economics is price change. Price change is usually a result of demand and supply forces. Economic theory considers the existence of elasticity in markets. Elasticity refers to the tendency of prices to change along with the changes in relative demand and supply. The concepts of elasticity and demand have major effects on the economy.
Economics is a study of how people, firms, institutions, and other actors interact in a given economic system. Interventions by government are always important in any economy. The study of business has become integral to the study of economics. There are many factors that affect the structure of business. These include technology, globalization, fiscal policy, social programs, political system, banking, marketing, entrepreneurship, mergers and acquisitions, price competition, technology diffusion, internal structures of organization, geographic regions, and relative contributions of particular groups of actors.
An informal economy is the market economy or market segments that exist outside formal systems of production and distribution. Informal economy is commonly referred as the black economy or the back economy. Examples of informal economies include drug use, street vending, informal money exchange, and credit-based commerce. It is estimated that about 20 percent of the world’s economy is based upon the informal economy. The main problem of the informal economy is over-production and under-utilization of available resources.
Many consider the informal economic activity to be harmless. It generates income and leads to economic growth. But critics argue that such economy has distorted the value of a country’s output and has led to the de-industrialization of certain regions of the economy. The most common forms of informal economic activity include bartering, work swapping, time lending, and machine renting.
The informal economic activity has created a vast network of real economy participants who have created the potential for a system of cross-currency trading. In this system, individuals and groups not only take part in the economic activity but also accept the risk of currency exchange. This has led to a rapid growth of the informal sector of the economy and has reduced the role of the formal sector in the global economy. In view of these changes, the informal agents are playing a greater role in shaping the architecture of the real economy than the formal agents.