An economy is a physical place of production, distribution, and exchange, and the interaction of different agents with each other. In a broader sense, it is also called ‘the community of producers’ since it describes a society based on the principles of exchange and reciprocity. In fact, in most modern societies, an economy is considered as the center of government, finance, technology, culture, communications, and mass production. In addition, an economy also implies the regulation of prices, payment, and allocation of resources.
The most common economic indicators are gross domestic product (GDP), industry, government, international trade, exchange rates, investment, price levels, international money flows, potential growth rates, the level of international trade, the level of export, level of import, balance of payments, foreign direct investment, free trade, fiscal balance, international aid, military expenditures, and net capital stock. Let us see some examples of how these concepts play in our daily lives. For example, GDP refers to the gross domestic product, which refers to the value of all products including financial assets such as accounts receivable, inventories, and investment. It is measured based on a country’s ability to produce and export. Industry is the collection of all types of businesses ranging from manufacturing, farming, construction, services, utilities, and others.
On the other hand, the concept of economics is the method of studying the relation of supply and demand, which is related to the factors that influence the rate of investment, activity, production and employment. Its basic economic theory is the law of demand and supply. Basically, economic theory considers the reality of prices, income, incentives, risks, and goals of choosing a particular economic activity. The term equilibrium was introduced to describe how the economy goes through a motion of a range of activities with equilibrium being a point at which the economy is at a constant state of growth or decrease.
In this system, economic indicators refer to the output, employment, and consumption of aggregate goods and services that an economy can produce and consume. Aggregate economic indicators are collected by governments, private agencies, or entities engaged in the process of economic growth and development. These aggregate economic indicators are then translated into indicators that allow measurement of the performance of the economy. These indicators then form the basis of national accounts that provide data on the performance of the economy on a macroeconomic scale. It is a well-known fact that economic growth is closely linked to the employment level, income, prices, availability, technology, and other factors.
In simple terms, economic agents refer to people that make the economy function. They include managers, workers, business owners, investors, creditors, suppliers, and other agents that are involved in the process of creating economic activity. Economic agents determine the allocation of resources to create new goods and services, implement technological change, improve production efficiency, expand capacity, and other actions that generate economic growth. The process of allocation of scarce resources between various economic activities is called economic activity. Economic activity generates output and income, which in turn provides the foundations for the accumulation of wealth.
With all these processes are going on, there are bound to be changes in the structure of the economy. The distribution of income and wealth becomes uneven and it results to changes in the income and wealth of those people who make up the economy. The economy tends to become dependent on the economic agents who exert their effort to achieve goals of excellence in the economy. As such, when economic activity ceases to generate surplus, the economy faces serious challenges and stagnates.
On the other hand, the mixed economy refers to a mixture of elements from the business sector with elements of services and manufacturing. The economy is characterized by a combination of growth and decline in the service sector and industrial sector depending on the state of the market economy. The market economy refers to a condition where the equilibrium exists between the demand and supply of goods and service. This situation is often referred to as a mixed economy since the products of different businesses compete with each other.
As an economy is built upon the operation of economic agents, it follows that the size and shape of the economy also depends on the level of operation of these agents. Growth in the economy occurs through the operation of economic agents, for instance, increase in business, investment, consumption, employment and output etcetera. Similarly, the rate at which these economic agents operate is directly proportional to the level of Gross Domestic Product (GDP). And as the economy grows, more money is added to the economy thus becomes a ‘growing economy’.