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Economy Overview
So, what is economics and what is an economy?
In a nutshell, economics is the science that analyzes how societies and people make decisions to maximize the use of limited resources. It is a study of scarcity, supply, demand, cost and human behaviour.
As every resource is considered finite and limited, most of us will engage in some form of economics to maximize the use of that limited resource.
In its simplest form, if you are thirsty and you only have a dollar, you will use that dollar to buy a drink and not a piece of cake. This is a good use of that resource (dollar) which satisfies your need (thirst).
In the same token, you should hope that the government spend your tax dollars in the best possible way and not waste this precious resource on non essential projects or pandering to minority interests.
Economics get to the core of these issues, analyzing political institutions, central banks, businesses, society and individual behaviours, to see how well they perform at converting the limited resources into the goods and services that best satisfy human wants and needs.
When supply meets demand exactly, market equilibrium is reached. Market equilibrium is another term or description for the “perfect balance”.
While the economy operates in a consolidated and congruous structure from many diverse parts like a living body, the financial system forms the brains of the economy.
The financial system drives economy activities and is responsible for everything that happens to the economy; its stability, money supply, prosperity, global influence, growth, political stability and more. On the other hand, the financial system can also cause economic instability, stagnation and even decline.
A good financial system brings prosperity to the country while a poorly managed financial system destroys it.
Macro Economics
Macroeconomics is the big picture view, looking at the economy as an organic whole.
Economy wide factors like interest rates, inflation, employment, taxation, exchange rate, immigration and productivity are central points in the big picture.
Other focal areas include government interventions, monetary policies and central bank cash rate movements.
Micro Economics
Microeconomics deal primarily with businesses and people.
For business, it explains market behaviour, what drives business decisions, how profit is maximized and competition.
For individuals, microeconomics explains human behavour in spending, savings, investments and risk.
You can read details about Macro and Micro economics here
The subject and study of economics can often be tedious, heavy and detailed. Unfortunately, all of us are affected by what happens in our economy today.
While I am certainly not advocating that everyone should go and get themselves a Master’s Degree in Economics but at the very least, we should all get a basic understanding of how the economy works, and more importantly, how money flows in the economy.
This knowledge can be the difference before having a good future or having no future.
More information on Economics and the Economy can be found on:
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