Economy is all the means by which goods and services are provided and traded in a society at any time and place. It embraces the specialization of labor, financial institutions, assembly lines, factories, mines, labor saving devices and markets. In the ancient world it was largely based on subsistence agriculture; in modern consumer societies it has expanded to include commerce, finance and technology-the so-called knowledge economy.
It is measured by gross domestic product (GDP), which consists of the value of final goods and services (such as food, televisions and medical care) produced in a nation. It also includes the compensation of employees and the operating surplus of businesses (roughly sales less costs). GDP differs from other economic measures in that it adds government spending on final goods and services to the expenditure approach, but subtracts government investment from the income approach. It also includes exports and imports, but excludes net foreign direct investment (NFDI).
The economy is a complex system involving households and businesses, as well as governments. It is affected by changes in production, consumption and trade and governed by laws and rules. Governments regulate the economy to meet economic goals like reducing income inequality and lowering inflation. They do this through fiscal and monetary policy.
The economy is a fundamental part of our daily lives and it’s important to understand the principles of supply and demand, inflation, monopolies, and financial markets. We can’t fully understand the world unless we learn about its economy.