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An economy or economic system consists of the production, distribution or trade, and consumption of limited goods and services by different agents in a given geographical location. The economic agents can be individuals, businesses, organizations, or governments. Transactions occur when two parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. In the past, economic activity was theorized to be bounded by natural resources, labor, and capital. This view ignores the value of technology (automation, accelerator of process, reduction of cost functions), and creativity (new products, services, processes, new markets, expands markets, diversification of markets, niche markets, increases revenue functions), especially that which produces intellectual property. A given economy is the result of a set of processes that involves its culture, values, education, technological evolution, history, social organization, political structure and legal systems, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. Some cultures create more productive economies and function better than others, creating higher value, or GDP. A market-based economy is where goods and services are produced without obstruction or interference, and exchanged according to demand and supply between participants (economic agents) by barter or a medium of exchange with a credit or debit value accepted within the network, such as a unit of currency and at some free market or market clearing price. Capital and labor can move freely to any area of emerging shortage, signaled by rising price, and thus dynamically and automatically relieve any such threat. Market based economies require transparency on information, such as true prices, to work, and may include various kinds of immaterial production, such as affective labor that describes work carried out that is intended to produce or modify emotional experiences in people, but does not have a tangible, physical product as a result. A command-based economy is where a central political agent commands what is produced and how it is sold and distributed. Shortages are common problems with a command-based economy, as there is no mechanism to manage the information (prices) about the systems natural supply and demand dynamics.
Economy
Range
Today the range of fields of study examining the economy revolve around the social science of economics, but may include sociology (economic sociology), history (economic history), anthropology (economic anthropology), and geography (economic geography). Practical fields directly related to the human activities involving production, distribution, exchange, and consumption of goods and services as a whole, are engineering, management, business administration, applied science, and finance. All professions, occupations, economic agents or economic activities, contribute to the economy. Consumption, saving, and investment are variable components in the economy that determine macroeconomic equilibrium. There are three main sectors of economic activity: primary, secondary, and tertiary. Due to the growing importance of the financial sector in modern times,[1] the term real economy is used by analysts[2][3] as well as politicians[4] to denote the part of the economy that is concerned with actually producing goods and services,[5] as ostensibly contrasted with the paper economy, or the financial side of the economy,[6] which is concerned with buying and selling on the financial markets. Alternate and long-standing terminology distinguishes measures of an economy expressed in real values (adjusted for inflation), such as real GDP, or in nominal values (unadjusted for inflation).[7]
Etymology
The English words "economy" and "economics" can be traced back to the Greek words (i.e. "one who manages a household"), a composite word derived from ("house") and ("manage; distribute") by way of ("household management"). The first recorded sense of the word "economy" is in the phrase "the management of conomic affairs", found in a work possibly composed in a monastery in 1440. "Economy" is later recorded in more general senses, including "thrift" and "administration". The most frequently used current sense, denoting "the economic system of a country or an area", seems not to have developed until the 19th or 20th century.[8]
History
Ancient times
As long as someone has been making, supplying and distributing goods or services, there has been some sort of economy; economies grew larger as societies grew and became more complex. Sumer developed a large-scale economy based on commodity money, while the Babylonians and their neighboring city states later developed the earliest system of economics as we think of, in terms of rules/laws on debt, legal contracts and law codes relating to business practices, and private property.[9] The Babylonians and their city state neighbors developed forms of economics comparable to currently used civil society (law) concepts. They developed the first known codified legal and administrative systems, complete with courts, jails, and government records. The ancient economy was mainly based on subsistence farming. The Shekel referred to an ancient unit of weight and currency. The first usage of the term came from Mesopotamia circa 3000 BC. and referred to a specific mass of barley which related other values in a metric such as silver, bronze, copper etc. A barley/shekel was originally both a unit of currency and a unit of weight... just as the British Pound was originally a unit denominating a one pound mass of silver. For most people the exchange of goods occurred through social relationships. There were also traders who bartered in the marketplaces. In Ancient Greece, where the present English word 'economy' originated, many people were
Economy bond slaves of the freeholders. Economic discussion was driven by scarcity.
Middle ages
In Medieval times, what we now call economy was not far from the subsistence level. Most exchange occurred within social groups. On top of this, the great conquerors raised venture capital (from ventura, ital.; risk) to finance their captures. The capital should be refunded by the goods they would bring up in the New World. Merchants such as Jakob Fugger (14591525) and Giovanni di Bicci de' Medici (13601428) founded the first banks.[citation needed] The discoveries of Marco Polo (12541324),Wikipedia:Disputed statement Christopher Columbus (14511506) and Vasco da Gama (14691524) led to a first global economy. The first enterprises were trading establishments. In 1513 the first stock exchange was founded in Antwerpen. Economy at the time meant primarily trade.
Economy 1958 John Kenneth Galbraith (19082006) was the first to speak of an affluent society. In most of the countries the economic system is called a social market economy.
Primary stage/degree of the economy: Involves the extraction and production of raw materials, such as corn, coal, wood and iron. (A coal miner and a fisherman would be workers in the primary degree.) Secondary stage/degree of the economy: Involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into cars, or textiles into clothing. (A builder and a dressmaker would be workers in the secondary degree.) At this stage the associated industrial economy is also sub-divided into several economic sectors (also called industries). Their separate evolution during the Industrial Revolution phase is dealt with elsewhere. Tertiary stage/degree of the economy: Involves the provision of services to consumers and businesses, such as baby-sitting, cinema and banking. (A shopkeeper and an accountant would be workers in the tertiary degree.) Quaternary stage/degree of the economy: Involves the research and development needed to produce products from natural resources and their subsequent by-products. (A logging company might research ways to use partially burnt wood to be processed so that the undamaged portions of it can be made into pulp for paper.) Note that education is sometimes included in this sector. Other sectors of the developed community include :
Economy the Public Sector or state sector (which usually includes: parliament, law-courts and government centers, various emergency services, public health, shelters for impoverished and threatened people, transport facilities, air/sea ports, post-natal care, hospitals, schools, libraries, museums, preserved historical buildings, parks/gardens, nature-reserves, some universities, national sports grounds/stadiums, national arts/concert-halls or theaters and centers for various religions). the Private Sector or privately run businesses. the Social sector or Voluntary sector.
Economic measures
There are a number of ways to measure economic activity of a nation. These methods of measuring economic activity include: Consumer spending Exchange Rate Gross domestic product GDP per capita GNP Stock Market Interest Rate National Debt Rate of Inflation Unemployment Balance of Trade
GDP
The GDP - Gross domestic product of a country is a measure of the size of its economy. The most conventional economic analysis of a country relies heavily on economic indicators like the GDP and GDP per capita. While often useful, it should be noted that GDP only includes economic activity for which money is exchanged.
Informal economy
An informal economy is economic activity that is neither taxed nor monitored by a government, contrasted with a formal economy. The informal economy is thus not included in that government's Gross National Product (GNP). Although the informal economy is often associated with developing countries, all economic systems contain an informal economy in some proportion. Informal economic activity is a dynamic process which includes many aspects of economic and social theory including exchange, regulation, and enforcement. By its nature, it is necessarily difficult to observe, study, define, and measure. No single source readily or authoritatively defines informal economy as a unit of study. The terms "under the table" and "off the books" typically refer to this type of economy. The term black market refers to a specific subset of the informal economy. The term "informal sector" was used in many earlier studies, and has been mostly replaced in more recent studies which use the newer term.
Economy
Notes
[1] The volume of financial transactions in the 2008 global economy was 73.5 times higher than nominal world GDP, while, in 1990, this ratio amounted to "only" 15.3 ( "A General Financial Transaction Tax: A Short Cut of the Pros, the Cons and a Proposal" (http:/ / www. wifo. ac. at/ wwa/ servlet/ wwa. upload. DownloadServlet/ bdoc/ WP_2009_344$. PDF), Austrian Institute for Economic Research, 2009) [2] "Meanwhile, in the Real Economy" (http:/ / blogs. wsj. com/ marketbeat/ 2009/ 07/ 23/ meanwhile-in-the-real-economy/ ), Wall Street Journal, July 23, 2009 [3] "Bank Regulation Should Serve Real Economy" (http:/ / blogs. wsj. com/ economics/ 2011/ 10/ 24/ boes-haldane-bank-regulation-should-serve-real-economy/ ), Wall Street Journal, October 24, 2011 [4] "Perry and Romney Trade Swipes Over Real Economy'" (http:/ / blogs. wsj. com/ washwire/ 2011/ 08/ 15/ perry-and-romney-trade-swipes-over-real-economy/ ), Wall Street Journal, August 15, 2011 [5] "Real Economy" (http:/ / lexicon. ft. com/ Term?term=real-economy) definition in the Financial Times Lexicon [6] "Real economy" (http:/ / glossary. econguru. com/ economic-term/ real+ economy) definition in the Economic Glossary [7] Deardorff's Glossary of International Economics, search for real (http:/ / www-personal. umich. edu/ ~alandear/ glossary/ r. html#real). R. O'Donnell (1987). "real and nominal quantities," The New Palgrave: A Dictionary of Economics, v. 4, pp. 97-98. [8] Dictionary.com (http:/ / dictionary. reference. com/ browse/ economy), "economy." The American Heritage Dictionary of the English Language, Fourth Edition. Houghton Mifflin Company, 2004. 24 Oct. 2009. [9] Sheila C. Dow (2005), "Axioms and Babylonian thought: a reply", Journal of Post Keynesian Economics 27 (3), p. 385-391.
References
Aristotle, Politics, Book I-IIX, translated by Benjamin Jowett, Classics.mit.edu (http://classics.mit.edu/ Aristotle/politics.html) Barnes, Peter, Capitalism 3.0, A Guide to Reclaiming the Commons, San Francisco 2006, Whatiseconomy.com (http://whatiseconomy.com/joomla/index.php?option=com_content&task=view&id=29) Dill, Alexander, Reclaiming the Hidden Assets, Towards a Global Freeware Index, Global Freeware Research Paper 01-07, 2007, Whatiseconomy.com (http://whatiseconomy.com/joomla/index. php?option=com_content&task=blogcategory&id=15&Itemid=31) Fehr Ernst, Schmidt, Klaus M., The Economics Of Fairness, Reciprocity and Altruism - experimental Evidence and new Theories, 2005, Discussion PAPER 2005-20, Munich Economics, Whatiseconomy.com (http:// whatiseconomy.com/joomla/index.php?option=com_content&task=view&id=29) Marx, Karl, Engels, Friedrich, 1848, The Communist Manifesto, Marxists.org (http://www.marxists.org/ archive/marx/works/1848/communist-manifesto/index.htm) Stiglitz, Joseph E., Global public goods and global finance: does global governance ensure that the global public interest is served? In: Advancing Public Goods, Jean-Philippe Touffut, (ed.), Paris 2006, pp.149/164, GSB.columbia.edu (http://www2.gsb.columbia.edu/faculty/jstiglitz/download/2006_Global_Public_Goods. pdf) Where is the Wealth of Nations? Measuring Capital for the 21st Century. Wealth of Nations Report 2006, Ian Johnson and Francois Bourguignon, World Bank, Washington 2006, Whatiseconomy.com (http:// whatiseconomy.com/joomla/index.php?option=com_content&task=view&id=29)
Further reading
Friedman, Milton, Capitalism and Freedom, 1962. Galbraith, John Kenneth, The Affluent Society, 1958. Keynes, John Maynard, The General Theory of Employment, Interest and Money, 1936. Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.
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