Understanding How Economy Works : The Simplest Explanation

The economy is the state of a country or region in terms of the production and consumption of goods and services and the supply of money. Well, that's really confusing. Let me make it easier for you. After going through this article you'll understand how exactly the economy of a country works.

Understanding The Economy

The economy of a country is a state which is defined by taking three points into consideration:

1. Production and Consumption of Goods(i.e., generally produced by Industrial Sector)

2. Production and Consumption of Services(i.e., Transport, Education, Healthcare, etc.)

3. Money-Flow

This is the theory, let's understand the economy by taking a realistic example.

Suppose a person establishes an industry that generates products. These products were sold to us and in return the company gets the money. This money is partitioned. A portion of the money goes to the owner as profit, another portion of the money is given to employees as salary, with another portion industry buys raw material for future production and a portion goes to the government as tax.

With this tax, the government pays salary to government employees and use it in public welfare schemes.

So, what is happening in all of this scenario? That is the flow of money and that's what define the economy. The economy is directly proportional to the flow of money. The high the flow of money, the higher will be the economy.

The good economy of a country defines that the money is active. If you stock money in your vaults, it will really harm the economy. If you want to do savings, you can use banks for that. Saving money in banks boosts the economy and it will be more secure for you as well as the bank will give you interest on your savings.

Why the Chinese Economy is growing so fast?

So, it's not only the flow of money that affects the economy of a country. There are several external factors.

Take an example. You and your friend have the same amount of money lets say 100 Rupees. If you sell him something for 50 Rupees then what will happen? Now you have 150 Rupees whereas your friend has only 50 Rupees remaining. The same is with the economy.

The higher you will export, the higher money you will get from other countries. This will raise your economy. That's what the Chinese do. Here are four points on how and why their economy is rising so fast:

1. Chinese products are cheaper than others.

2. They export their product worldwide.

3. They are making a profit from other countries.

4. They import very few things.

What can you do?

Everyone wants to boost their economy, so here are a few suggestions you can do to make it happen.

1. Import less, use Local Products.

2. Try to control the cost of your products and increase quality and export them worldwide. Once, your product is cheap and has more quality, everyone will buy it.

3. Do effective marketing of your products.

4. Build start-ups.

The End Notes

Due to the pandemic, businesses are closed, economies are falling down, people are losing their jobs. It will be very tough to regain the boost from this situation. Well, we will regain it, altogether.

That's all in this article, I hope you guys really understand how the economy works now. Please drop your ideas and views on boosting the economy.

Cheers!