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Journals · Publications Categories · Topics · Economists An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area. An economy may also be described as a spatially limited and social network where goods and services are exchanged according to demand and supply between participants by barter or a medium of exchange with a credit or debit value accepted within the network. A given economy is the end result of a process that involves its technological evolution, history and social organization, 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. 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, range from engineering to management and business administration to applied science to finance. All professions, occupations, economic agents or economic activities, contribute to the economy. Consumption, saving, and investment are variable components in the economy and determine market 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] [edit] Etymology The English words "economy" and "economics" can be traced back to the Greek words οἰκονόμος, i.e. "one who manages a household", a composite word derived from οἴκος ("house") and νέμω ("manage; distribute"); οἰκονομία ("household management"); and οἰκονομικός ("of a household; of family"). The first recorded sense of the word "œconomy" is in the phrase "the management of œconomic 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] [edit] History [edit] 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.[10] They developed the first known codified legal and administrative systems, complete with courts, jails, and government records. Several centuries after the invention of cuneiform, the use of writing expanded beyond debt/payment certificates and inventory lists to be applied for the first time, about 2600 BC, to messages and mail delivery, history, legend, mathematics, astronomical records and other pursuits. Ways to divide private property, when it is contended... amounts of interest on debt... rules as to property and monetary compensation concerning property damage or physical damage to a person... fines for 'wrong doing'... and compensation in money for various infractions of formalized law were standardized for the first time in history.[9] Greek drachm of Aegina. Obverse: Land turtle / Reverse: ΑΙΓ(INA) and dolphin. The oldest turtle coin dates 700 BC 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 bond slaves of the freeholders. Economic discussion was driven by scarcity. Aristotle (384-322 B.C.) was the first to differentiate between a use value and an exchange value of goods. (Politics, Book I.) The exchange ratio he defined was not only the expression of the value of goods but of the relations between the people involved in trade. For most of the time in history economy therefore stood in opposition to institutions with fixed exchange ratios as reign, state, religion, culture, and tradition.[citation needed] [edit] 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 (1459–1525) and Giovanni di Bicci de' Medici (1360–1428) founded the first banks.[citation needed] The discoveries of Marco Polo (1254–1324),[dubious – discuss] Christopher Columbus (1451–1506) and Vasco da Gama (1469–1524) 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. [edit] Early modern times The European captures became branches of the European states, the so-called colonies. The rising nation-states Spain, Portugal, France, Great Britain and the Netherlands tried to control the trade through custom duties and taxes in order to protect their national economy. The so-called mercantilism (from mercator, lat.: merchant) was a first approach to intermediate between private wealth and public interest. The secularization in Europe allowed states to use the immense property of the church for the development of towns. The influence of the nobles decreased. The first Secretaries of State for economy started their work. Bankers like Amschel Mayer Rothschild (1773–1855) started to finance national projects such as wars and infrastructure. Economy from then on meant national economy as a topic for the economic activities of the citizens of a state. [edit] The industrial revolution The first economist in the true meaning of the word was the Scotsman Adam Smith (1723–1790). He defined the elements of a national economy: products are offered at a natural price generated by the use of competition - supply and demand - and the division of labour. He maintained that the basic motive for free trade is human self interest. The so-called self interest hypothesis became the anthropological basis for economics. Thomas Malthus (1766–1834) transferred the idea of supply and demand to the problem of overpopulation. The United States of America became the place where millions of expatriates from all European countries were searching for free economic evolvement. The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, and transport had a profound effect on the socioeconomic and cultural conditions starting in the United Kingdom, then subsequently spreading throughout Europe, North America, and eventually the world. The onset of the Industrial Revolution marked a major turning point in human history; almost every aspect of daily life was eventually influenced in some way. In Europe wild capitalism started to replace the system of mercantilism (today: protectionism) and led to economic growth. The period today is called industrial revolution because the system of Production, production and division of labour enabled the mass production of goods. [edit] After World War II After the chaos of two World Wars and the devastating Great Depression, policymakers searched for new ways of controlling the course of the economy. This was explored and discussed by Friedrich August von Hayek (1899–1992) and Milton Friedman (1912–2006) who pleaded for a global free trade and are supposed to be the fathers of the so called neoliberalism. However, the prevailing view was that held by John Maynard Keynes (1883–1946), who argued for a stronger control of the markets by the state. The theory that the state can alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism in his honor. In the late 1950s the economic growth in America and Europe—often called Wirtschaftswunder (ger: economic miracle) —brought up a new form of economy: mass consumption economy. In 1958 John Kenneth Galbraith (1908–2006) was the first to speak of an affluent society. In most of the countries the economic system is called a social market economy. [edit] Economic Phases of Precedence The economy may be considered as having developed through the following Phases or Degrees of Precedence. The ancient economy was mainly based on subsistence farming. The industrial revolution phase lessened the role of subsistence farming, converting it to more extensive and mono-cultural forms of agriculture in the last three centuries. The economic growth took place mostly in mining, construction and manufacturing industries. Commerce became more significant due to the need for improved exchange and distribution of produce throughout the community. In the economies of modern consumer societies phase there is a growing part played by services, finance, and technology—the (knowledge economy). In modern economies, these phase precedences are somewhat differently expressed by four degrees of activity.[citation needed] 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 : the Public Sector or state sector (which usually includes: parliament, law-courts and government centers, various emergency services, public health, shelters for empoverished 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. [edit] 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 [edit] 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. [edit] Informal economy Main article: 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. Micro economics are focused on an individual person in a given economic society and Macro economics is looking at an economy as a whole. (town, city, region) [edit] Largest economies by GDP in 2011 List of 20 Largest Economies in Nominal GDP in 2011 by the International Monetary Fund[11][12] List of 20 Largest Economies in GDP (PPP) in 2011 by the International Monetary Fund[13][14] Rank Country GDP (billions of USD) Share of Global GDP   World 70,011.680 100.00%  European Union 17,960.206 25.65% 1  United States 15,064.816 21.52% 2  China 6,988.470 9.98% 3  Japan 5,855.383 8.36% 4  Germany 3,628.623 5.18% 5  France 2,808.265 4.01% 6  Brazil 2,517.927 3.60% 7  United Kingdom 2,480.978 3.54% 8  Italy 2,245.706 3.21% 9  Russia 1,884.903 2.69% 10  India 1,843.382 2.63% 11  Canada 1,758.680 2.51% 12  Spain 1,536.479 2.19% 13  Australia 1,507.402 2.15% 14  Mexico 1,185.215 1.69% 15  South Korea 1,163.847 1.66% 16  Netherlands 858.282 1.23% 17  Indonesia 834.335 1.19% 18  Turkey 763.096 1.09% 19  Switzerland 665.898 0.95% 20  Sweden 571.567 0.82% Remaining Countries 13,848.426 19.78% Rank Country GDP (billions of USD) Share of Global GDP   World 78,852.864 100.00%  European Union 15,788.584 20.02% 1  United States 15,064.816 19.10% 2  China 11,316.224 14.35% 3  India 4,469.763 5.67% 4  Japan 4,395.600 5.57% 5  Germany 3,089.471 3.92% 6  Russia 2,376.470 3.01% 7  Brazil 2,309.138 2.93% 8  United Kingdom 2,253.585 2.86% 9  France 2,216.769 2.81% 10  Italy 1,828.601 2.32% 11  Mexico 1,659.016 2.10% 12  South Korea 1,556.102 1.97% 13  Spain 1,413.027 1.79% 14  Canada 1,391.114 1.76% 15  Indonesia 1,122.638 1.42% 16  Turkey 1,054.560 1.34% 17  Iran 930.236 1.18% 18  Australia 918.978 1.17% 19  Taiwan 886.489 1.12% 20  Poland 766.675 0.97% Remaining Countries 17,833.592 22.62% [edit] Economies with the Largest Contribution to Global Economic Growth from 1996 to 2011 List of 20 Largest Economies by Incremental Nominal GDP from 1996 to 2011 by the International Monetary Fund[15][16] List of 20 Largest Economies by Incremental GDP (PPP) from 1996 to 2011 by the International Monetary Fund[13][17] Rank Country GDP (billions of USD) Share of Global Incremental GDP Annualized GDP Growth   World 39,555.368 100.00% 8.7%  European Union 8,590.950 21.72% 6.1% 1  United States 7,226.341 18.27% 6.1% 2  China 6,132.386 15.50% 47.8% 3  Brazil 1,677.875 4.24% 13.3% 4  Russia 1,493.128 3.77% 25.4% 5  India 1,467.162 3.71% 26.0% 6  United Kingdom 1,260.125 3.19% 6.9% 7  France 1,234.680 3.12% 5.2% 8  Japan 1,212.836 3.07% 1.7% 9  Germany 1,190.811 3.01% 3.3% 10  Canada 1,144.904 2.89% 12.4% 11  Australia 1,079.758 2.73% 16.8% 12  Italy 985.759 2.49% 5.2% 13  Spain 913.829 2.31% 9.8% 14  Mexico 798.152 2.02% 13.7% 15  South Korea 590.846 1.49% 6.9% 16  Indonesia 583.589 1.48% 15.5% 17  Turkey 519.201 1.31% 14.2% 18  Netherlands 440.176 1.11% 7.0% 19  Saudi Arabia 402.551 1.02% 17.0% 20  Poland 375.097 0.95% 16.0% Remaining Countries 8,826.162 22.31% Rank Country GDP (billions of USD) Share of Global Incremental GDP Annualized GDP Growth   World 44,637.666 100.00% 8.7% 1  China 9,259.491 20.74% 30.0% 2  United States 7,226.341 16.19% 6.1%  European Union 7,046.287 15.79% 5.4% 3  India 3,294.148 7.38% 18.7% 4  Japan 1,446.900 3.24% 3.3% 5  Russia 1,441.025 3.23% 10.3% 6  Germany 1,241.305 2.78% 4.5% 7  Brazil 1,239.214 2.78% 7.7% 8  United Kingdom 1,018.702 2.28% 5.5% 9  South Korea 950.875 2.13% 10.5% 10  France 946.698 2.12% 5.0% 11  Mexico 851.188 1.91% 7.0% 12  Spain 706.292 1.58% 6.7% 13  Canada 699.905 1.57% 6.8% 14  Indonesia 636.440 1.43% 8.7% 15  Turkey 634.219 1.42% 10.1% 16  Italy 623.271 1.40% 3.4% 17  Iran 573.686 1.29% 10.7% 18  Taiwan 540.237 1.21% 10.4% 19  Australia 499.933 1.12% 8.0% 20  Poland 463.329 1.04% 10.2% Remaining Countries 10,344.467 23.17%