What is "the economy"?

[Koshinn]

I am knowledgeable in many things, but one thing that confuses me is the economy.

What is it exactly? From what I understand, it has to do with the GDP and the amount of money spent by people? Or something?

It seems really nebulous and hard to understand. How does it grow? Can you just throw money at it to make it better?

[NWPilgrim]

The reason it is confusing us because we have politicians who blather on about govt spending helping the economy. They even include givt dpending in GDP! Govt can only spend what it taxes. So it is a drag on the true economy, the commerce of non-govt companies, organizations, and individuals.

One baseline should be the total manufacturing production of goods: factory and farm output, construction. You could add services provided but the heart of healthy economy is turning raw materials into useful goods. SPENDING should never be used to measure the size or health of the economy.

[Magic_Salad0892]

It is general commerce, or the flow of money.

Economics at it's base is the study of money in motion. That simple sentence should be remembered when reading about any economic matter.

[austinN4]

http://en.wikipedia.org/wiki/Economy

http://www.merriam-webster.com/dictionary/economy

http://www.thefreedictionary.com/economy

http://www.investopedia.com/terms/e/economy.asp

http://www.cliffsnotes.com/sciences/sociology/economics-and-politics/economy-defined

[Koshinn]

So what really happens when the economy "improves"?

[Big A]

So what really happens when the economy "improves"?

Consumers have more money to spend on frivolus goods as opposed to necessities.

Buisnesses have more money to expand or improve as opposed to cut back.

[Belmont31R]

Go take Econ 101.


Its a lot harder than I thought it would be (Im taking Macro right now). I didn't realize, based on what my phd professor says, they basically only really accept people into the Econ program at UT Austin who already have a 4 year degree in MATH first. Their econ program is a graduate level set of courses, very few people get in, and a tiny fraction of those get a phd. Not that I was interested in an Econ program but taking this course as part of my degree plan. But just implying that economists really have to be math whizzes first before they get into the theoretical stuff. A lot of what economists do is boring calculations. Not too many ever get well known for theory...but they are supposed to have the math to back it up.


But anyways, when the economy improves, we basically move closer to 100% of our potential productivity. Every country has number which is 100% efficiency, but its impossible to be 100% efficient. For instance, just having unemployment, we aren't 100% efficient because we're under utilizing our work force. Theres other factors to gauge the health of the economy. GDP is a big one which counts things like final goods and services. A final good is basically what the end user would purchase. If you, company b, buy lead ingots from company A and turn them into a product to sell to consumers, those ingots are not counted in the GDP since they are not a 'final good' when going from A to B. You can count people's income, imports/exports, ect, as a gauge of the economy.

Inflation is another indicator, and most economists today will say that a small amount of inflation is a good thing. About 2-3%. Inflation is calculated with a set 'basket of goods' that the price of each item in the basket is tracked. They're not really supposed to change those items because then the numbers get thrown off but they've changed them in the last ~5 years to better reflect modern purchasing habits. From what I understand they've removed things like energy, and food in some measures.

My professor has basically said most of the numbers you hear on the news are bunk, and they're intentionally flawed to make the politicians look good. Unemployment numbers are all way off from 'reality'. We basically, right now, have over 20% 'real unemployment', but the number everyone touts, the U3 (and to a lesser extent U6), only count people for a certain amount of time before they're dropped off the rolls. Mentioned already...but the total labor force participation rate is WAY down to like late 70's early 80's levels....but obviously we have a ton more people than 30 years ago.

[austinN4]

My professor has basically said most of the numbers you hear on the news are bunk, and they're intentionally flawed to make the politicians look good. Unemployment numbers are all way off from 'reality'. We basically, right now, have over 20% 'real unemployment',......................
Nice to hear that a UT Prof admitted that.

[Koshinn]

Go take Econ 101.


Thanks for the rest of your reply.

I graduated years ago and don't intend to go back to undergrad if I can help it, which is why I ask here.

Someone wrote that raising the minimum wage will inject money into the economy. Is that true? It seems like it's taking from the economy to give back to the economy.

[austinN4]

Someone wrote that raising the minimum wage will inject money into the economy. Is that true? It seems like it's taking from the economy to give back to the economy.

http://en.wikipedia.org/wiki/Velocity_of_money

[Belmont31R]

Thanks for the rest of your reply.

I graduated years ago and don't intend to go back to undergrad if I can help it, which is why I ask here.

Someone wrote that raising the minimum wage will inject money into the economy. Is that true? It seems like it's taking from the economy to give back to the economy.


Raising the minimum wage lowers the number of people employed. Proven fact. Its a feel good measure the left uses to entice lower income people but those people are less likely to find a job if the minimum wage goes up. http://www.cato.org/pubs/pas/pa106.html


My comment wasn't meant to be condescending. Theres just a lot more to it than I ever expected, and its actually a really good class.

[30 cal slut]

I am knowledgeable in many things, but one thing that confuses me is the economy.

What is it exactly? From what I understand, it has to do with the GDP and the amount of money spent by people? Or something?

It seems really nebulous and hard to understand. How does it grow? Can you just throw money at it to make it better?

The government measures the economy like this:

Consumption. What you and I will go out and buy.

Business investment. Like when a business buys a factory or a piece of equipment.

Government spending. Self-explanatory.

Net exports. Self explanatory.

So, the economy, or GDP = consumption + business investment + government spending + net exports.

Consumption (that's you and me buying guns, ammo, and training and booger king) is about 2/3 of the equation.

[Cameron]

The Economy is NOT GDP. The "Economy" is simply a term used to describe the system of markets in which we operate. From the macroeconomics of the global markets and the US markets to the microeconomics of your own daily activities.

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