Nowadays we are hearing a lot about the economic slowdown. In this article, we will understand what is the economy and how it affects us. Let’s start.
The economy is nothing but simply the sum of all the transactions that take place in a country. Let’s understand in detail.
Transactions:
The buying and selling of goods and services are called transactions. Each transaction has a buyer and seller. Every time we buy something we create a transaction. Buyer pays through money or credit with the seller for the goods and services or financial assets. Purchases made maybe with cash or with credit. So adding together the money spent either through cash or with credit we get the total spending.
“ The total amount of spending drives the Economy”. That’s it. All the cycles and forces in an economy are driven by transactions. So if you understand the transactions and how it works you understand the whole economy. Simple.
Markets:
A market or sector consists of all the buyers and sellers making the transaction for the same thing. For example: the housing market makes the buyer and seller of houses. Similarly Banking, gold, steel, auto market, etc. The economy consists of all transactions in all of the markets. The combination of all the transactions in all markets or sectors makes the economy. So Indian economy is made up of all transactions in all markets in India. “ More the transactions, more the spending, and More the spending occurs, bigger the economy grows” People, businesses, banks, and governments all engage in the making of transactions for exchanging money and credit for goods, services, and financial assets. The biggest buyer and seller is the government which consists of two parts. 1) the Central Government: which collects the taxes and spends the money and 2) the Central Bank: which controls the amount of money and credit in the economy, by influencing the interest rates and printing the money Central bank is an important player in the flow of credit.